Weekly market update - Strait talk, markets on alert

Stay up to date with the latest market trends, economic shifts and key financial developments across the UK, US, and Asia – giving you clear insights to support client conversations.

This week's headlines: 

• Oil surges as US–Iran tensions escalate – oil prices moved sharply higher as geopolitical tensions between the US and Iran intensified, pushing brent crude to its highest level in more than six months. The rise followed US warnings over Iran’s nuclear programme and renewed military activity around the Strait of Hormuz – a critical route for global energy shipments.
• UK inflation slows – January CPI drifted down to 3%, the slowest pace of price growth in ten months. The fall was driven largely by lower transport costs and easing food price pressures, with petrol and airfares contributing significantly to the monthly decline.
• UK public finances improve – the UK recorded its first January budget surplus since 2020, supported by strong tax receipts and a rebound in retail activity. While this offers fiscal breathing room, the Office for Budget Responsibility (OBR) continues to highlight long-term structural pressures – like our country's aging population – on borrowing and spending. 
• UK employment softens – the latest PAYE and labour market statistics show the unemployment rate rising to 1.88 million, up more than 20% from a year earlier, and redundancies have also increased. Wage growth has continued to cool, with regular pay rising 3.9%, easing from levels seen through 2025. Vacancy numbers were little changed but remain well below their peaks, pointing to a labour market that is gradually losing momentum.
• US slowdown worries grow – composite Purchasing Managers’ Index (PMI) hit a 17-month low, jobless claims edged higher, and consumer confidence fell, raising concerns about the durability of US growth. The latest January Federal Open Market Committee (FOMC) minutes show Fed officials are increasingly cautious, with many signalling that further rate cuts should be paused for now, and only resume later in 2026 if inflation continues to fall as expected.

Markets spent the week balancing softer global growth signals against a meaningful escalation in geopolitical risk. The most immediate market mover was the jump in oil prices, driven by renewed uncertainty around the Strait of Hormuz. With roughly one third of seaborne crude passing through this narrow corridor, any perceived threat quickly feeds into supply fears and, in turn, inflation expectations. 

For the Bank of England, the combination of slowing inflation and softening labour conditions strengthens the case for cutting interest rates in the months ahead. While policymakers remain sensitive to stubborn services inflation, the broader trend points toward fading price pressure and a labour market that no longer poses the same inflationary threat it once did. 

In the US, geopolitical pressures overlapped with economic uncertainty. Weaker business surveys, cautious corporate commentary and diminishing near term rate cut hopes weighed on equities – particularly the more concentrated parts of the market, like mega‑cap tech. 

For diversified investors, the message remains consistent: leadership is rotating, policy clarity is limited, and geopolitical noise continues to influence markets in short, sharp bursts. Maintaining balance across regions, styles, and asset classes remains essential.

Chart of the week - oil’s conflict premium

Source: Bloomberg

This chart highlights a striking pattern in oil markets over the past two years: brent crude prices have repeatedly failed to sustain rallies during episodes of heightened tension between the US, Israel, and Iran. Each shaded region marks a period of geopolitical escalation, yet on every occasion, oil prices fell back quickly once the immediate risks appeared to ease.

This week’s surge in oil – driven by renewed concerns around the Strait of Hormuz – echoes the familiar playbook: an initial geopolitical shock, a fast upward reaction in oil, and a market forced to reassess the durability of the move. 

Two points stand out:

• Geopolitical risk premia are often short lived, but not guaranteed to fade quickly when underlying tensions remain unresolved. 
• Higher oil prices feed directly into inflation expectations, complicating the rate cut outlook for major central banks. 

For investors, the takeaway isn't to predict the next dollar on Brent, but to recognise how fast-moving geopolitical events can spill into inflation expectations, rate cut timing, and sector performance. This reinforces the importance of diversification – particularly when single factor exposures (like energy prices or inflation surprises) can move portfolios abruptly.

UK defensive strength during geopolitical uncertainty

Defence and energy companies supported the FTSE 100 as geopolitical tensions boosted oil prices, while healthcare stocks lagged on tariff concerns. Sentiment was anchored by improving retail data and steady earnings delivery.

Growth fears pressure US equities

In dollar terms the S&P 500 stalled out, with tech stocks underperforming as investors reassessed the likelihood of imminent Fed rate cuts. Geopolitical tensions and weaker business surveys added to caution, while energy stocks benefited from higher crude prices. UK investors saw a greater return from the drop in the value of the pound over the week.

PMI resilience supports European markets

European equities posted a mixed but relatively resilient week, supported by strong earnings, improving PMIs, and continued rotation into the region from global investors. However, tariff threats from the US kept auto and industrial companies capped.

China quiet, Hong Kong steady

With mainland Chinese markets closed for Lunar New Year, trading activity centred on Hong Kong, where the Hang Seng held up well despite global volatility. South Korean equities also delivered another strong week, with the KOSPI extending its record-breaking rally. Gains were broad, benefitting from robust global demand and improving domestic sentiment.

Oil surges, gold steadies

Oil rallied sharply on the week’s geopolitical developments, and gold paused after recent strong gains. Silver saw some volatility, and European natural gas continued its modest upward trend on colder weather and supply risks.

Source: FE FundInfo, goldprice.org, exchangerates.org.uk, investing.com and finance.yahoo.com. GBP returns as at close of business on Thursday 19th February 2026.

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This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.