Geopolitical risk drives divergence across global markets

Market Commentary

US equities recovered on Monday as investors bought into the early selloff, allowing markets to claw back most of the morning’s weakness and stabilise as the session progressed. Mega-cap technology names led the rebound, with Nvidia rising 2.90% and Microsoft gaining 1.50%, reflecting continued confidence in their earnings resilience despite escalating Middle East tensions. Defence and energy counters remained supported by geopolitical developments. Northrop Grumman advanced 6%, while Exxon Mobil added 1.10% as oil prices held firm following the closure of the Strait of Hormuz. Meanwhile, the ISM Manufacturing Prices Index rose sharply to 70.5 points, reigniting inflation concerns and pushing Treasury yields higher. Even so, broader risk appetite held up, with momentum-driven names such as Palantir Technologies climbing 5.80%.

In contrast, European equities came under heavy pressure, retreating from the record levels tested last week as geopolitical risk escalated over the weekend. The selloff followed US strikes that reportedly killed Iran’s Supreme Leader and several senior officials, triggering retaliatory attacks by Iran on US-linked targets across the Middle East, including energy infrastructure. The sharp rise in energy prices — with natural gas surging and oil extending gains — lifted inflation expectations and sovereign bond yields across the region, weighing particularly on rate-sensitive sectors. Banks were among the hardest hit, with Banco Santander, BBVA and Intesa Sanpaolo each falling around 4%. Consumer discretionary and luxury names also weakened on concerns that higher inflation and borrowing costs could dampen demand. Inditex, LVMH and Hermès dropped more than 4%, while automakers BMW and Volkswagen declined about 5%. By contrast, defence and energy counters outperformed, supported by the heightened conflict and sustained strength in commodity prices.

Asia-Pacific markets were mixed as investors reacted to the ongoing geopolitical turmoil and local economic cues. In Japan, the Nikkei 225 fell 2.30%, reflecting a broad risk-off tone. The move was compounded by microeconomic headwinds, including rising input costs for manufacturers due to higher energy prices, which threaten to compress corporate margins. At the same time, yen weakness provided some support to exporters by improving earnings translation, although concerns remain around household consumption as real wage growth struggles to keep pace with inflation.

In China, sentiment remained cautious amid mixed underlying fundamentals. While targeted policy support continues, micro-level pressures persist, including subdued property-sector activity, cautious private-sector investment, and soft consumer demand. Elevated youth unemployment and ongoing balance-sheet repair in the real estate space are also weighing on domestic confidence. Energy-related counters found some support from firmer oil prices, but broader participation remained limited.

Locally, South African stocks retreated as international conflict and firm oil prices prompted a cautious tone. The FTSE/JSE All Share Index closed around 126 991 points, down 1.14%, while the FTSE/JSE Top 40 fell 1.25%. Iranian missile and drone strikes in Gulf cities lifted global risk premiums and pushed Brent crude higher, feeding concerns that headline inflation could temporarily rise and delay further South African Reserve Bank rate cuts. Sector performance was mixed: miners including Anglo American Platinum and Impala Platinum fell on softer metal prices, banks such as Firstrand and Capitec Bank lagged, while industrials, consumer-defensive, retail, and telecom counters offered support. The local backdrop remains resilient, with the JSE Group reporting record 2025 profits exceeding R1 billion and proposing a special dividend, underscoring strong trading volumes and investor engagement.

Commodities mirrored the global risk backdrop on Monday, with oil surging and precious metals buoyed by safe‑haven flows. Brent crude traded in the $87 to $92 a barrel range, lifted by Middle East tensions and repricing of supply risk, pushing fuel costs higher and posing a short‑term inflation and current‑account headwind for South Africa, a net energy importer. By contrast, spot gold rose toward $2 130 an ounce and platinum hovered around $1 020 an ounce, benefiting local exporters, improving terms of trade and supporting mining revenues. Base metals such as copper and iron ore remained subdued, reflecting softer industrial demand, but higher energy and safe-haven sentiment provided some offset for South African producers, helping maintain positive cash-flow trends in the sector.