In our latest Weekly Comment, we explore how the resilience of global markets is set to be tested once again following the joint US‑Israel attack on Iran. We examine how this new conflict compares with last year’s 12 Day War, the market implications of surging oil and gas prices, and the growing tension between safe‑haven flows and inflation risks. The update also covers the latest moves across US, UK and European markets, including shifts in Treasury yields, the continued outperformance of value stocks, and strong European equity momentum.
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Market overview
For a long time, this iteration of the Weekly Comment was shaping up to be filled with further insights and developments on and around themes currently weighing on markets. The rollercoaster ride that is the debate over the future direction of US interest rates after the latest producer price inflation figure came in above expectations. Further commentary on ongoing investor jitters over how artificial intelligence (AI) is threatening to disrupt a host of sectors after the release of a widely read report—even another forecast-busting set of results from Nvidia could not improve sentiment. And how despite AI concerns and the threat of renewed conflict in the Middle East, global stock markets still managed to end the week in positive territory, a further indication of how market leadership is broadening out. Then came the joint attack by the US and Israel on Iran on Saturday 28 February.
All three countries have been here before. As recently as June 2025, the US bombed Iran’s nuclear development facilities in what has become known as the 12 Day War. However, this latest conflict is already more wide ranging after Iran chose to retaliate by bombing neighbouring Middle Eastern countries, with those hosting US bases particularly in the line of fire. Of course, no two wars are the same and clearly there is no idea at this stage on how long or how devastating this latest conflict will prove to be, but it is worth taking a look at how financial markets reacted to last year’s 12 Day War. As the table below shows equities were unphased while bond yields dropped a little.
|
|
Global equities (MSCI ACWI USD) |
US treasuries yield change |
|
1d before |
0% |
-0.002% |
|
1w before |
-1% |
-0.017% |
|
3 m before |
5% |
0.121% |
|
1d after |
0% |
-0.042% |
|
1w after |
4% |
-0.121% |
|
3m after |
11% |
-0.240% |
Question is, will an equivalent table covering this latest conflict look similar? Only time will tell. Until it does, the best way to manage risk in portfolios is via diversification.
One market that is very much front and centre is commodities courtesy of the Middle East’s status as a major oil and gas producing region. At the time of writing, the oil price is up 9% to US$79/bbl (per barrel) while European gas prices are up around a quarter—both are comparable moves to those seen during the 12 Day War. One assumes US President Trump will be hoping oil prices follow a similar path to that seen during the June 2025 conflict—after the initial spike higher prices quickly went into reverse. The latest attacks however do appear to have the potential to cause a more lasting disruption. If so, it could start feeding into higher inflation prints around the world, including the US. Not what the US president would like to see as he tries to show the American people that he is tackling the cost-of-living crisis, especially with November’s mid-term elections looming ever larger on the horizon.
Finally, a note on timing. The latest conflict started on Saturday 28 February. Trump hit eight European countries with tariffs in response to their participation in a recce exercise in Greenland on Saturday 17 January 2026. The US captured the then Venezuelan President Maduro on Saturday 3 January 2026. All took place on weekends. Why? To catch people unawares? Because global markets are largely closed? Whatever the reason, it seems market participants can no longer afford to switch off during weekends.
Weekly market moves and economic news:
The MSCI All Country World Index (MSCI ACWI) ended the week up 0.4%, bringing the year-to-date (YTD) gain to 4.3%.
United States:
The main US stock market closed last week off 0.4%, trimming the YTD gain to +0.7%. Considering the various concerns weighing on markets—the worry that AI will disrupt large swathes of businesses and sectors; renewed uncertainty over tariffs following Trump’s imposition of a 10% global levy; and the threat of conflict in the Middle East— the relatively small weekly loss highlights how resilient equity markets have been so far in 2026.
A large part of this resilience has been provided by value stocks, a theme which continued during the week with value (+0.1%) outperforming growth stocks (-0.8%). Value is now up 7.2% YTD while growth is off 4.8%. Small caps, another strong performer this year, found the going harder, losing 1.2% over the course of the week (+6.2% YTD).
US Treasuries were the week’s clear winners with yields on the 10-year note falling 15 basis points to 3.94%, the first time it has dipped below 4% since November 2025 (down 23 basis points YTD). The yield on the 2-year Treasury fell 10 basis points to 3.38% (down 10 basis points YTD). The start of the US-Iran conflict poses a dilemma for US Treasuries. On the one hand Treasuries should benefit from safe-haven flows, on the other, fears of an oil-price induced bout of inflation could put upwards pressure on yields. Already these opposing forces are in evidence. Initially, US Treasury prices were bid up on the back of the risk-off trade only for this to give way to selling pressure on inflation fears.
United Kingdom:
There was little by way of UK economic data releases during the week, allowing domestic politics to take centre stage, specifically the Green Party’s victory in the Gorton and Denton by election. With Labour pushed down to third place behind Reform UK in second, the result was undoubtedly a setback for prime minister Sir Keir Starmer, raising further doubts over how long he can remain in his position as leader.
Not that you would have noticed by looking at London’s financial markets with the large-cap index posting a weekly gain of 2.1% (+10.2% YTD), while the mid-caps finished flat (+6.1% YTD). Sterling was also stable against the US dollar at US$1.35. Even gilts were not too bothered by the by-election result with the yield on 10-year notes down 13 basis points to 4.23% (down 24 basis YTD).
Europe ex UK:
European stocks built on their strong start to the year with the MSCI Europe ex-UK Index adding 0.3% (+6.5% YTD). European equity markets benefited from decent corporate results, positive economic data (notably the Ifo Institute’s Business Climate Index which rose to 88.6 in February, its highest level since last summer), and continued positive capital flows as investors look to reduce their exposure to tech and the US.
At the national level, Germany’s main stock market squeaked into positive territory with a 0.1% gain (3.2% YTD); France performed better adding 0.8% (+5.3% YTD); Switzerland was up 1.1% (+5.6% YTD); while Italy fared the best gaining 1.6% (+5.4% YTD). As with sterling, the euro was unmoved against the US dollar at US$1.18. Finally, the yield on the 10-year German bund declined by 10 basis points to 2.64% (down 21 basis points YTD).
