Financial markets endured a turbulent week as the FTSE 100 extended its slide, pressured by Brent crude oil surpassing 90 dollars a barrel, which fueled inflation anxieties and sent UK bond yields soaring. A disappointing US employment report further dampened sentiment, contributing to sharp declines across European and US equities.
Market Performance and Oil Price Surge
The FTSE 100 index closed down 129.19 points, or 1.2%, at 10,284.75, while the FTSE 250 fell 199.25 points, or 0.9%, to 22,500.95, and the AIM All-Share dropped 3.66 points, or 0.5%, to 784.70. For the week, the FTSE 100 plummeted 5.7%, the FTSE 250 declined 5.3%, and the AIM All-Share dipped 4.2%.
Brent oil traded sharply higher at 90.85 dollars a barrel on Friday afternoon, up from 84.41 dollars the previous day. This surge followed Kuwait's announcement to halt energy production, joining Qatar, as the Middle East crisis deepened. Attacks on oilfields in southern Iraq and the northern autonomous Kurdistan region forced a US-run facility to shut down, exacerbating supply concerns.
Geopolitical Tensions and Economic Implications
Kathleen Brooks, research director at XTB, noted that US President Donald Trump dismissed hopes for mediation to end the Middle East war, dashing expectations of a swift resolution. Iranian state television reported a fresh drone strike on a ship in the strategic Strait of Hormuz, causing a fire on the seventh day of the conflict with the US and Israel.
US Energy Secretary Chris Wright stated the US Navy was preparing to escort ships through the Strait of Hormuz "as soon as it's reasonable to do it," while Trump had earlier pledged to protect vessels, though shipping companies remained cautious.
Bank of America highlighted that only marked and persistent spikes in crude prices trigger lasting inflationary cycles. "If the status quo persists, with oil prices around 15 dollars higher than the pre-war level, we would fade oil-induced inflation concerns. But an escalation driving oil prices persistently above 100 dollars would become more concerning," the bank warned.
US Jobs Data and Federal Reserve Outlook
Adding to market woes, US non-farm payroll employment fell by 92,000 in February, sharply underperforming against expectations of a 59,000 rise. January's increase was revised down to 126,000 from 130,000, and December's total was revised to a fall of 17,000 from an increase of 48,000. The unemployment rate rose to 4.4% in February from 4.3%.
Analysts at Wells Fargo said this data challenges the view among Federal Reserve officials that the labour market is stabilising, with the Iran conflict further complicating the outlook. "Ultimately, the Federal Reserve cannot do much to combat higher inflation from a supply-side oil price shock. Yet, the inflationary impact makes it harder to be a dove at the moment," they noted, maintaining a forecast for 50 basis points of rate cuts this year.
ING suggested that January jobs numbers probably overstated hiring strength, while February figures may overstate weakness due to bad weather and strikes. "Nonetheless, hiring remains subdued, and higher energy costs will squeeze spending power, leaving the door open for Fed rate cuts. But that will be a late second half of the year story," it added.
Bond Yields and UK Economic Vulnerabilities
Rising energy prices pressured bonds as expectations for interest rate cuts were delayed due to anticipated higher inflation. The yield on the US 10-year Treasury stretched to 4.16% from 4.15%, and the 30-year yield widened to 4.78% from 4.76%. In the UK, the 10-year gilt yield leapt to 4.61% from 4.48%, having traded at about 4.23% a week ago.
Allan Monks, analyst at JPMorgan, stated, "Amid the current energy shock, the UK has twin vulnerabilities given a high dependency on natural gas but also a rapidly weakening labour market." He said a March Bank of England rate cut is "off the table" and April "requires a clear calming of geopolitical tensions," with risks shifting towards a lengthier pause.
Barclays still expects a 25 basis points cut but acknowledged the decision is on a "knife-edge," noting that geopolitical uncertainty or hotter data could tip the balance to a hold.
Global Equities and Currency Movements
In European equities, the CAC 40 in Paris and the DAX 40 in Frankfurt both closed down 0.9%. On Wall Street, the Dow Jones Industrial Average fell 1.1%, the S&P 500 dropped 1.0%, and the Nasdaq Composite declined 0.8%.
The pound strengthened to 1.3387 US dollars from 1.3309, while the euro rose to 1.1597 dollars from 1.1574. Against the Japanese yen, the dollar traded slightly lower at 157.62 yen. Gold climbed to 5,142.35 dollars an ounce from 5,075.16.
Notable Stock Movements and Corporate Updates
Stocks making waves included IMI, up 2.3%, after announcing a new £500 million share buyback and reporting a 27% rise in pretax profit to £419 million for 2025. Fading rate cut hopes pressured rate-sensitive sectors, with Barratt Redrow down 2.6%, Berkeley down 3.0%, and DIY retailer Kingfisher falling 5.2%. On the FTSE 250, cruise operator Carnival shed 6.4% as travel operators faced continued pressure.
The biggest risers on the FTSE 100 were Rightmove, Autotrader, BAE Systems, 3i Group, and IMI, while the biggest fallers included Kingfisher, Anglo American, Airtel Africa, Pershing Square Holdings, and Marks & Spencer.
Upcoming Economic and Corporate Events
Monday's global economic calendar features an inflation reading in China overnight and a US consumer inflation expectations report. In the UK, corporate updates include full-year results from Clarkson, a London-based provider of shipping services.
Contributed by Alliance News, this report underscores the interconnected pressures of geopolitical strife, energy markets, and monetary policy shaping financial landscapes.
