Geopolitics dominated market news this week after the United States and Israel launched a joint strike on Iran. This marked the second US engagement with Iran since Donald Trump returned to the White House, with the latest operation targeting Iran’s nuclear and ballistic missile infrastructure. The attacks escalated significantly, resulting in the death of Iran’s Supreme Leader, Khamenei.
Iran retaliated by striking US bases across the Gulf rather than targeting US soil directly. Kuwait, the United Arab Emirates, and Bahrain were all hit by waves of missiles, marking a sharp escalation in the conflict. Today, as the war enters its seventh day, more than 1,000 people have been killed in Iran, and there is little sign of a quick resolution. There were initial rumours that Mojtaba Khamenei would step in as Supreme Leader replacing his father, but this has been thrown into doubt after President Trump made it clear he intends to play a direct role in selecting a new leader.
Meanwhile, Iran has effectively shut the Strait of Hormuz, cutting off around a fifth of global oil and LNG supplies. Energy markets have reacted sharply, with oil prices rising throughout the week – brent crude oil is now trading at around $91 a barrel. Higher oil prices will put pressure on inflation, and we have seen government bond yields rise in reflection of inflation risk. Higher oil prices will also put pressure on Trump, who is unlikely to tolerate sustained elevated oil prices, especially with mid-term elections fast approaching.
US Non‑Farm Payrolls, released on Friday afternoon, shocked markets after an estimated 92,000 jobs were lost in February. This came in well below the forecast of a 55,000 gain and marked a sharp deterioration from January’s revised gain of 126,000. The reliability of the Bureau of Labor Statistics’ calculations remains in question. In January, the healthcare sector alone added more than 80,000 roles, yet it saw job losses in February, largely attributed to strike activity. Federal government employment also continued its downward trend. Since peaking in October 2025, the sector has shed around 330,000 jobs. Meanwhile, the unemployment rate rose back to 4.4% in February, underscoring the weakening labour market. A softer labour backdrop would normally increase pressure on the Federal Reserve to cut rates; however, given the heightened geopolitical tensions, markets are firmly expecting a pause at the March meeting.
US retail sales also appeared to stall in January, with month‑on‑month data showing a ‑0.2% decline. It is worth noting that January is typically the weakest month of the year, a trend that was reinforced this year by severe cold weather across parts of the country. Given that consumer spending accounts for more than two‑thirds of US GDP, any sustained softness would be concerning. However, spending remains supported by higher‑income households, who continue to drive much of the consumption. Economists also expect that the larger tax refunds associated with the One Big Beautiful Bill Act will help underpin consumer activity through the first half of the year.
Eurozone inflation rose to 1.9% in February, pleasingly remaining below target. Over the past year, headline inflation has ranged between 1.7% and 2.3%, which has allowed the European Central Bank to aggressively cut interest rates. Core inflation (excludes energy and food), also edged higher, rising to 2.4% from 2.2% the previous month. Concerns are beginning to emerge as spillover effects from the US–Iran conflict filter through. Higher oil and gas prices, alongside broader supply‑side disruptions, pose clear upside risks to the inflation outlook. With the European Central Bank set to meet in just under two weeks, no immediate policy change is expected, but policymakers will be on high alert as these risks continue to materialise.
In the UK, Chancellor of the Exchequer Rachel Reeves delivered her Spring Statement, which proved largely a non‑event for markets. She insisted the government has the “right economic plan for our country” and noted that, within the next two weeks, three major choices will be outlined to help shape the future economy — focused on strengthening global relationships, reducing trade barriers, and harnessing the power of AI. The Office for Budget Responsibility revised its 2026 growth forecast down to 1.1%. However, there remains optimism that inflation will continue to moderate sooner than expected.
This has been a challenging week for investors with concerns around the Middle East conflict appearing to increase throughout the week, reflected in asset prices. History would suggest this is a mere speed bump in markets and if anything, this could be a buying opportunity. It is however, important to guard against complacency, something we are focused on doing and ensuring portfolios are suitably positioned for a range of outcomes.
Nathan Amaning, Investment Analyst
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