Global equities and global tech were up more than 5% YTD, led by Asia and Europe, while U.S. stocks declined. U.S.–Israel strikes on Iran are triggering a risk-off move at the start of March, likely to persist while military operations continue. Safe-haven assets, including gold, government bonds, and the USD, are expected to benefit from increased flows.
Market Movers so far in 2026
Market Drivers for 2026
Key Risks
Outlook for 2026
Global equities, the technology sector (especially outside the U.S.), and bonds continue to show positive momentum, supported by pro‑growth policies and record investments in technology, artificial intelligence, resources, and defense.
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Strikes by the U.S. and Israel on Iran have lifted geopolitical risk premia as markets enter March. Gold is likely to benefit from safe-haven demand, while oil prices may rise on supply disruption concerns. Equity and currency markets face higher volatility, especially if retaliation or regional escalation materializes, with the scale of moves depending on the duration and intensity of the conflict.
At the same time, consumer spending continues to anchor growth, supported by rising real incomes and near full employment. Fiscal policy remains broadly supportive, monetary policy in Europe is neutral and rate cuts are expected in both the UK and the U.S. as inflation eases. Investment in artificial intelligence is still expanding, albeit at a slower pace than in 2025.
In the U.S.: Solid growth at 2.2% with gradual disinflation
Growth is running at an annualized 2.2%, with private domestic demand remaining firm despite the drag from the government shutdown. Labor markets are stabilizing, and growth should stay above trend in 2026, supported by fiscal stimulus and easier financial conditions, with two rate cuts expected from the Fed by September, bringing the U.S. Fed funds rate to 3%. Inflation has eased to 2.4% year over year, as goods prices remain contained and services disinflation continues. Tariffs will likely weigh on goods prices through the first half of 2026, while the broader inflation outlook remains uncertain.
In Europe: Growth strengthens at 1.3% as inflation stays contained at 1.7%
The Eurozone economy surprised positively at the start of 2026, supported by a more favorable German policy mix and a neutral monetary stance, with growth forecast at 1.3%. Labor markets remain resilient, service activity is robust, and manufacturing shows early signs of improvement. Inflation should stay below 2% through 2026, and while the European Central Bank (ECB) signals a high bar for further cuts, the next policy move is still likely to be downward.
In China: Steady growth at 4.5% with little inflation and pro-tech policy
China is likely to set a 2026 growth target of 4.5-5.0%, with actual growth around 4.5%, supported by industrial upgrading, technology innovation, and more stable U.S.–China relations. High-level visits may lead to agreements on trade and investment, alongside further tariff reductions. The new Five-Year Plan emphasizes productivity gains, with moderately loose monetary policy, selective fiscal support, and mild inflation expected to rise slightly to 0.2% in 2026.
February 2026 presented a mixed backdrop across asset classes. Global equities maintained positive momentum, delivering a 6.75% YTD return, while the cryptocurrency market experienced notable price declines. Japan and South Korea continued to outperform during the month, whereas U.S. equities showed signs of moderation. Against a backdrop of heightened geopolitical uncertainty, commodities recorded strong gains across oil, gold, and copper.
Equity: In Asia, South Korea’s Kospi 200 was the leading performer (+21.9% MTD), followed by Japan’s Nikkei 225 (+10.4% MTD). China’s HSCEI declined (-4.9% MTD). In Europe, the Euro Stoxx 50 delivered a solid gain of 3.2% MTD. In contrast, U.S. equity performance was negative during the month, with the S&P 500 down 0.9% MTD and the Nasdaq 100 down 2.3% MTD.
Fixed Income: 10-year yields trended lower in February, with the U.S. yield down 29bps MTD to 3.95%, the German yield down 19bps MTD to 2.66%, while China’s 10-year yield was flat MTD at 1.82%.
Currencies: The USD performance was mixed in February amid geopolitical tensions. EUR/USD declined 0.3% MTD to 1.1813 and USD/JPY rose 0.8% MTD to 156.05, while AUD/USD gained 2.2% MTD to 0.7113 and USD/RMB fell 1.4% MTD to 6.8599.
Commodities: Amid heightened geopolitical tensions toward month-end, gold rallied 11.0% MTD to USD 5,231. WTI oil and copper gained 2.8% and 1.8% to USD 67.02/bbl and USD 13,238/ton, respectively.
Crypto: In February, the cryptocurrency market experienced a significant downturn with Bitcoin at USD 65,541 (-22.2% MTD), Ether at USD 1,922 (-28.9% MTD), and Solana at USD 81 (-30.8% MTD).
The Middle East conflict has driven a sharp increase in equity market volatility, with the volatility index (VIX) at ~20%. The extent of further market swings will depend on the scale and duration of the crisis. Despite this backdrop, global equities continue to move higher, supported by strong performance in cyclical regions and sectors that more than offset weakness in U.S. technology stocks. The overall equity environment remains constructive, underpinned by easing tariff pressures, expected Fed rate cuts, and increasingly supportive fiscal policy, reinforcing the case for diversified allocations. While U.S. technology remains structurally strong, attractive opportunities have emerged in Chinese and European technology, with earnings growth expected to broaden across sectors in 2026.
In the U.S.: S&P 500 only up 0.5% YTD on Middle East conflict while sector rotation gains momentum
Strikes on Iran have added pressure to U.S. markets, with the S&P 500 being flattish, although headline performance masks sharp internal divergences. Value and small caps are up 6% YTD, while growth is down 4%; energy has surged, while financials have declined. Earnings per share (EPS) growth remains solid at around 12%, but leadership is broadening beyond large-cap tech as AI capex growth slows from elevated levels. With earnings expanding across sectors and manufacturing indicators improving, opportunities are increasing outside tech, even as the overall market backdrop remains supportive.
In Europe: Euro Stoxx 50 up 3.4% YTD, Eurozone cyclical stocks poised for earnings rebound
European earnings are set to reaccelerate after three flat years, with profit growth expected at 8% in 2026 and 10% in 2027, supported by improving confidence and accommodative global policy. Valuations remain attractive, while exposure to power, resources, and healthier banks positions Europe well for rising capex, AI, energy transition, and defense spending. Tariff risks look manageable, and we stay positive on European equities.
In China: HSCEI is down 2.3%, China tech momentum slows on geopolitical tensions
China’s tech sector remains strong, backed by strong government support for AI, semiconductors, and digital platforms, reinforced by Xi Jinping’s push for AI self-sufficiency and industrial competitiveness by 2027. This tech momentum supports broader China equities, alongside improving liquidity and early signs of macro stabilization, with manufacturing back in expansion and GDP growth reaching 5% in 2025. Policy easing, consumption subsidies, and renewed investor inflows are lifting sentiment, pointing to accelerating technology adoption and earnings growth.
We expect FX volatility to rise after the U.S.–Israel strikes on Iran, creating tactical hedging opportunities for corporates and investors. A classic flight to safety should support the USD, while oil and gold are likely to gap higher. Higher oil prices would weigh on importing regions such as the Eurozone, potentially pushing EUR/USD lower, although downside may be limited by the broader USD downtrend. In the near term, risks are skewed toward a stronger USD, depending on how the Middle East situation evolves.
In this highly unpredictable FX environment, active currency risk management and appropriate FX hedging are essential to protect capital and maximize growth.
EUR/USD at 1.17 under pressure amid geopolitical escalation
Following the U.S.–Israel strikes on Iran, we expect near-term USD strength driven by safe-haven flows and higher oil prices. As a net energy importer, the Eurozone is more exposed to sustained crude upside, which could weigh on EUR/USD. The initial move is likely lower in EUR/USD, potentially sharply if volatility escalates. However, gains in the USD may prove temporary if the conflict remains contained or if markets price faster Fed rate cuts, hence the importance of FX risk management and hedging.
USD/RMB under 7.00, although recent geopolitical tensions are supporting the currency pair
Following the U.S.–Israel strikes on Iran, we expect near-term USD strength driven by safe-haven flows and higher oil prices. As a net energy importer, the Eurozone is more exposed to sustained crude upside, which could weigh on EUR/USD. The initial move is likely lower in EUR/USD, potentially sharply if volatility escalates. However, gains in the USD may prove temporary if the conflict remains contained or if markets price faster Fed rate cuts, hence the importance of FX risk management and hedging.
USD/JPY near 40-year high at ~157 as safe-haven dynamics drive the currency pair
Geopolitical escalation is likely to increase volatility in USD/JPY, as safe-haven flows support both the USD and the JPY. In the very short term, higher U.S. yields and risk aversion may keep USD/JPY elevated. However, if global risk sentiment deteriorates further, traditional yen safe-haven demand could cap the upside and potentially push USD/JPY lower.
Geopolitical escalation is fueling safe-haven flows into U.S. Treasuries and major European government bonds, pushing yields lower. The U.S. 2-year yield has declined to 3.35%, its lowest level since August 2022, as markets price earlier Fed cuts. Treasuries could extend gains in the near term following the U.S.–Israel strike on Iran. However, sustained oil strength may revive inflation concerns and cap the rally. Ultimately, yield direction will remain driven by Fed policy and U.S. fundamentals, which are unchanged.
Gold is up 22% YTD to ~USD 5,300/oz, benefiting from geopolitical risk escalation
Strikes on Iran are likely to reinforce safe-haven demand for gold, supporting prices in the near term. Rising geopolitical risk and higher oil prices increase inflation hedging demand, adding to upside momentum. If the conflict escalates or broadens regionally, gold could test the recent all-time high of USD 5,600. However, sustained gains will depend on real yields and USD direction, which remain key macro drivers.
Oil: Prices rise 24% YTD to USD 71/bbl on Middle East tensions and Strait of Hormuz risk
The U.S.–Israel strikes on Iran have heightened oil price volatility as markets price in increased supply risk from the Middle East, especially around the Strait of Hormuz, a chokepoint for roughly 24% of global oil flows. Brent crude has already risen to multi-month highs, and analysts see further upside if the conflict threatens shipments or infrastructure. Near term, prices could jump USD 5–10/bbl on heightened risk premiums, with scenarios of sustained disruption pushing Brent toward USD 80 or even above USD 100/bbl if the strait is affected.
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