The hot topic this week is the prospect of US intervention in Iran. Washington is currently deploying its most substantial military capabilities since the 2003 Iraq war. Yesterday, Donald Trump indicated that he was setting Iran a deadline of 10 to 15 days. According to the Wall Street Journal, the US President is considering an initial limited strike to force Tehran back to the negotiating table. In the markets, this renewed tension has pushed oil prices higher, with Brent crude now trading at 72 dollars a barrel.
The backdrop has nonetheless benefited defence stocks, enabling the EuroStoxx 50 to notch fresh records on Wednesday. Yesterday, however, European indices closed lower, with a string of earnings releases punished by investors, including Airbus.
It was also a negative session on Wall Street, where concerns around artificial intelligence resurfaced with renewed vigour. Blue Owl Capital’s decision to suspend redemptions in one of its funds once again put private equity groups under pressure. Blackstone and Apollo Global Management were among the sharpest fallers on the day.
Beyond the daily swings, the moves observed since the start of the year leave me somewhat perplexed. What story are the markets telling us? Which scenario are investors playing? In truth, it is difficult to draw a coherent narrative across asset classes.
Let us start with Bank of America’s latest survey of fund managers. It shows investor sentiment to be highly bullish. Without revisiting the entire report, expectations for GDP growth and corporate earnings are elevated. In terms of positioning, managers are overweight commodities, emerging markets and small caps. The conclusion is that a cyclical upswing is the favoured scenario. In the markets, this thesis is borne out by the leadership of basic resources and energy, and by the outperformance of the Russell 2000, the US small cap index, relative to the S&P 500.
At the same time, however, bond yields are falling, with the US 10 year Treasury this week touching its lowest level of the year, and defensive stocks are in demand. The consumer staples sector is among the best performers of 2026. Such moves point more towards recession fears, or at the very least mounting concerns about growth.
If this appears inconsistent, it is also because the economic outlook remains uncertain at this stage. Here, I return to an excellent piece by Nick Timiraos in the Wall Street Journal, in which he describes a US economy that appears to have achieved the much hoped for soft landing. The Federal Reserve’s rate rises in 2022 and 2023 did not derail growth, yet they did succeed in curbing inflation, which has fallen back in recent months to around 2.5%.
This is an outcome to be welcomed and would mark a fitting end to the tenure of Jerome Powell, so often criticised, not least by Donald Trump. Yet the equilibrium remains fragile. Risks are visible on both sides. Inflation could reaccelerate as US companies increasingly pass on higher prices to consumers. The labour market could also deteriorate further, not least amid concerns over the impact of artificial intelligence.
Perhaps today’s data will provide greater clarity. The macroeconomic calendar takes centre stage with the publication of fourth quarter GDP and December PCE inflation in the United States. Both releases were delayed by the 43 day government shutdown last autumn.
Elsewhere in the news:
- Donald Trump announced on Thursday, during the first meeting of the Board of Peace, that 7 billion dollars had been paid into a reconstruction fund for the Gaza Strip.
- Christine Lagarde told the Wall Street Journal that fulfilling her mandate at the helm of the European Central Bank would require her full term, denying rumours of a possible early departure.
In Asia Pacific, the Hong Kong stock exchange reopened today after a three day closure for Lunar New Year celebrations. Mainland Chinese markets remain shut until Tuesday 24 February inclusive. The Kospi in South Korea, meanwhile, continues its relentless advance. The index is up more than 35% so far this year.
Today's economic highlights:
On today's agenda: Manufacturing and Services PMIs in Japan; Retail Sales and PMIs in the United Kingdom; in Germany, PPI and PMIs; in France, PMIs; in the Euro Area, PMIs; in Canada, Retail Sales; in the United States, GDP, PCE Price Index, Personal Income and Spending, New Home Sales, PMIs, and Bostic's speech. See the full calendar here.
- GBP / USD: US$1.35
- Gold: US$5,018.4
- Crude Oil (BRENT): US$71.92
- United States 10 years: 4.07%
- BITCOIN: US$67,880.3
In corporate news:
- Rio Tinto reported fiscal H2 EBITDA and earnings slightly below expectations, with 2025 underlying earnings per share at $6.692, down from $6.695 the previous year.
- Centrica reported a swing to a 2025 attributable loss of £72 million, with revenue down 2.1% to £19.49 billion, and paused its share buyback program to prioritize investments.
- Mondi announced a 29% drop in 2025 pretax profit to €269 million and slashed its annual dividend by 60% due to a downturn in paper markets.
- Safestore reported a 7.9% revenue increase to £61.2 million in its first quarter, driven by higher occupancy and revenue per available foot.
- Polar Capital Global Financial achieved an 11% increase in net asset value per share and a 44% rise in its full-year dividend for 2025.
- Daiichi Sankyo and AstraZeneca received EU validation for their Enhertu application as a treatment for early breast cancer.
- Shell announced progress on its Dragon gas project in Venezuela under new US general licenses.
- Capita secured a £137 million 10-year contract renewal for its pension solutions arm.
- Drax signed a 200-megawatt battery energy storage tolling agreement with Zenobe Coalburn, targeting commercial operation in 2026.
- Novartis sells 70.68% stake in Indian subsidiary for $159 million, exiting Indian market.
- Sika AG forecasts 1-4% sales growth in 2026, with improved EBITDA margin.
- Moncler reports 7% revenue rise in Q4, driven by growth in Asia and Americas.
- Imerys halts Cornwall lithium project to focus on central France project.
- Brunel International reports Q4 2025 revenue of €300.4 million, down 10% YoY.
- Castellum AB sells nine properties to AP7 for SEK 5.6 billion.
- Synsam reports Q4 revenue of SEK 1.784 billion, exceeding consensus.
- Inission reports 23.7% revenue increase in Q4 2025.
- Grupo Ezentis reports FY net loss of €3.2 million.
- PureTech Health receives orphan drug designation for Deupirfenidone (LYT-100).
- Nvidia close to finalizing $30 billion investment in OpenAI.
- Amazon's AWS experienced multiple outages in December due to AI coding tool errors.
- Walmart CEO projects FY net sales growth of 3.5%-4.5%, below expectations.
- Walgreens to lay off over 600 employees as part of cost-cutting measures.
- Boeing faces criticism from NASA for Starliner mission failures.
- AMD backs $300 million loan guarantee for Crusoe's AI chip purchase.
See more news from UK listed companies here
Analyst Recommendations:
- Auto Trader Group Plc: Deutsche Bank maintains its buy recommendation and reduces the target price from GBX 1040 to GBX 850.
- Rightmove Plc: Deutsche Bank maintains its buy recommendation and reduces the target price from GBX 732 to GBX 665.
- Intercontinental Hotels Group Plc: Grupo Santander maintains its neutral recommendation and raises the target price from USD 119.29 to USD 147.
- Gsk Plc: Barclays maintains its underweight recommendation and raises the target price from GBP 17.80 to GBP 19.
- St. James's Place Plc: UBS upgrades to buy from neutral and reduces the target price from GBX 1565 to GBX 1465.
- Glencore Plc: JP Morgan maintains its neutral recommendation and raises the target price from GBP 5.10 to GBP 5.20.
- Vodafone Group Plc: UBS maintains its sell recommendation and raises the target price from GBX 82 to GBX 84.
- Rio Tinto Plc: RBC Capital maintains its sector perform recommendation and reduces the target price from GBX 6100 to GBX 5900.
- Halma Plc: Panmure Liberum maintains its buy recommendation and raises the target price from GBX 3880 to GBX 4270.
