Derren Nathan, head of equity research, Hargreaves Lansdown: “The FTSE 100 is set to open down after a weekend of heightened military action and rhetoric in the Middle East. The US President has given Tehran until the end of today to reopen the Strait of Hormuz or risk strikes on the country’s power generation facilities. So far, there have been no signs of Tehran backing down, but international diplomatic efforts, including a late-night Sunday call between Donald Trump and Sir Keir Starmer, have intensified in an attempt to avoid further escalation.
On the domestic front, Wednesday’s UK CPI inflation reading for February will be a key data point for rate setters and markets. The numbers predate the recent oil shock and forecasts, but comments by the Bank of England suggest that continued high services inflation is likely to keep the number close to January’s 3.0% read out. Easier comparisons and the fiscal tightening seen in the 2025 Budget had been expected to see second quarter CPI inflation fall towards 2.1%, but higher fuel prices are now expected to see the average of the next three months stay at around 3%. That’s seen discretionary sectors underperform so far in 2026, partially offset by stronger performances in Oil & Gas, Electricity and Aerospace and Defence.
US stock futures are also down, taking a lead from the Asian and European exchanges. In a reversal of trends of recent years, US markets have underperformed global indices so far this year, with value strategies holding up better than growth.
Although the S&P 500 is down around 5% year-to-date, there have been some pockets of strength, with the Oil & Gas and energy sectors unsurprisingly being the standout. Sticking with commodities, Basic Materials are in positive territory with defensive sectors such as Telecoms, Consumer Staples and Utilities also firmly in the green. Semiconductors stocks have also made gains so far this year. This typically cyclical sector is benefiting from the once in a generation pivot towards artificial intelligence. More broadly, cash-rich, cash-generative big technology companies look well placed to ride out economic challenges.
Brent Crude is currently trading at $113 per barrel but has bounced between $104 and $118 over the last 24 hours as traders continue to grapple with the standstill of shipping in the Strait of Hormuz, which typically transports 20 million oil equivalent barrels of hydrocarbons each day. The International Energy Agency is considering the release of further emergency reserves, but the effectiveness of this temporary measure is limited, with a swift end to hostilities in the Gulf remaining key to restoring stability. US crude inventories are one to watch after a surprise build last week, illustrating strength in America’s domestic energy supplies.
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