Markets cautious as Middle East tensions, oil volatility weigh on sentiment

Market Commentary

Global markets closed the week under pressure as investors navigated escalating Middle East tensions, renewed inflation concerns and rising energy prices. The uncertain backdrop fuelled safe-haven demand for the US dollar, while equities were broadly weaker.

US equities capped a turbulent week with losses across major indices: the S&P 500 fell 0.60%, the Dow dropped 0.30% and the Nasdaq 100 shed 0.70%. Heightened Middle East tensions and volatile energy markets eroded investor confidence, driving a flight to safety. US Defense Secretary Pete Hegseth announced the largest wave of strikes against Iranian targets on Friday, solidifying the Strait of Hormuz blockade. This escalation fuelled fears of prolonged global stagflation, propelling the dollar index above 100.3 to its highest since mid-May 2025 and setting it up for a second straight weekly gain. Traders favoured the greenback as a haven amid dim prospects for conflict resolution, while the US's energy independence positioned it favourably against other economies.

Yields rose despite soft 4Q25 GDP data, weighing on credit-sensitive sectors. Tech heavyweights bore the brunt, with Adobe tumbling 7.60% on a guidance miss and CEO departure, while Meta, Palantir and Oracle declined between 1.70% and 3.80%.

Attention now turns to the Federal Reserve meeting next week, where rates are expected to hold steady. Investors will look for signals on the inflation outlook amid rising energy costs, with markets now pricing in only one rate cut for 2026.

European equity indices closed Friday's session lower, extending recent declines amid soaring energy prices and rising credit costs that squeezed profit margins. The Eurozone STOXX 50 dipped 0.60% to 5 712, ending the week flat, while the STOXX 600 fell 0.50% to 596, indicating a 0.50% weekly decline. London’s FTSE 100 dropped 0.50% to 10 254, as weak January GDP data (flat vs. 0.20% is expected). Meanwhile, Germany’s DAX 40 slipped back into negative territory, falling around 0.80% to near the 23 400 level. Investors grew more cautious ahead of the weekend as tensions between Washington and Tehran remained elevated.

Bond yields across major Eurozone economies rose towards 15-year highs, fuelled by persistent climbs in key energy commodities due to supply disruptions from the Iran conflict. This upward pressure weighed on several sectors. Banks faced ongoing challenges from expectations of a rate hike by the European Central Bank (ECB), which could compress net interest margins: Deutsche Bank declined 5.05% over the week to a nine-month low, while UniCredit fell 4% to its lowest since November 2025. Discretionary names like LVMH eased 4.40% in the session, and higher energy costs tempered industrials, with Siemens, Schneider Electric and Siemens Energy down between 2% and 6%. UK losers included Fresnillo (-5.80%), Rolls-Royce (-4.80%) and housebuilder Berkeley Group (-2.00+%), despite reaffirmed profit guidance.

In Asia, Chinese equities ended the session lower, with the Shanghai Composite falling 0.80% and the Shenzhen Component declining 0.65% to 14 281, as geopolitical tensions and higher oil prices weighed on sentiment. Despite these pressures, Chinese markets showed relative resilience, supported by Beijing’s long-term efforts to strengthen energy security through investments in renewables and strategic oil reserves. The offshore yuan also weakened to around 6.89 against the dollar as investors continued to assess the implications of the latest US trade investigations. The probes will examine whether certain policies, particularly those related to forced labour, are considered ‘unreasonable or discriminatory’ and whether they burden US commerce. The move adds further complexity to US–China relations ahead of a closely watched summit in Beijing.

South African markets remained volatile as global sentiment was influenced by the Middle East conflict and rising oil prices. The JSE All Share Index closed the week at 114 924 points after losing just over 3% during the past month as investors adopted a more defensive stance. Resource stocks were among the biggest losers on Friday. The rand also experienced a volatile week, weakening to around R16.92 to the dollar earlier in the week before recovering to trade between R16.30 and R16.49 midweek. Renewed pressure linked to higher oil prices and geopolitical uncertainty pushed the currency back toward R16.85 by Friday evening. The South African Stock Market (SAALL) fell to 116 948 points, declining 0.38% from the previous session.

Oil markets remained volatile as geopolitical risks continued to dominate sentiment. WTI crude futures climbed as high as $102.40 per barrel before turning lower following US strikes on military assets at Iran’s Kharg Island over the weekend as the conflict entered its third week. US President Donald Trump warned that Iran’s energy infrastructure could be targeted if Tehran interferes with transit through the Strait of Hormuz, which has remained effectively closed since hostilities began.

Meanwhile, traders assessed reports that the US may announce a coalition to escort ships through the waterway. The International Energy Agency (IEA) also confirmed that oil from last week’s record 400-million-barrel reserve release will be made available immediately in Asia.

Precious metals, gold traded near $5 000 per ounce after falling for two consecutive weeks as volatile oil prices and geopolitical tensions continued to influence markets. Silver fell to around $80 per ounce, marking a fourth straight session of declines as markets assessed the impact of the ongoing Iran conflict and volatile oil prices.