February 2026

February 2026 proved to be a funny old month, in which markets absorbed shock after shock and yet, on the surface at least, refused to buckle. Global equities held, bar the Nasdaq, and even commodities avoided outright panic. But beneath that composure lay a distinct unease. Economic resilience is there, yet geopolitical escalation, rising energy risk and the renewed unpredictability of Trump’s policy agenda, both military and economic, continue to inject a growing sense that stability rests on increasingly narrow foundations.

The month was largely defined by geopolitics, particularly in the second half. After weeks of tension, the US strikes targeted Iranian infrastructure and were followed by retaliatory missile and drone responses, raising fears of a broader regional confrontation. Markets immediately recognised the stakes. The Strait of Hormuz, the world’s most strategically important oil chokepoint, sits at the heart of the theatre, and even the suggestion of disruption was enough to reprice energy risk globally.

What makes the situation especially complex is the absence of a clear endgame. We now know that the US killed Ayatollah Ali Khamenei in the initial strikes. If what evolves into a drawn-out confrontation, the economic consequences could extend well beyond a temporary oil spike. The likelihood of sustained upward pressure on energy prices increased meaningfully through the month, and with it the prospect of renewed inflationary tension just as central banks had begun to believe the worst was behind them.

As if military escalation were not enough, Trump also revived economic confrontation, with renewed threats of sweeping trade tariffs, directed not only at strategic rivals but also at longstanding trading partners. Proposals ranged from broad-based import levies to sector-specific penalties aimed at reshaping supply chains in favour of domestic production. Even where measures were not immediate, the tone itself unsettled global trade-sensitive sectors. The combination of military assertiveness and tariff brinkmanship amplified the sense that globalisation’s fragile equilibrium is once again under strain.

Despite this backdrop, the global economy did not falter. US economic data continued to surprise on the upside. Labour markets remained tight, consumer spending held up, and corporate earnings, while mixed, broadly exceeded cautious expectations.  Markets that had entered 2026 expecting rapid interest rate cuts were forced to reassess, as stronger data reduced the urgency for the Fed to pivot.

Across Europe and the UK, growth was softer but stable. Inflation continued its gradual moderation, though the services components remained stubborn. There was no sense of imminent recession, but equally little sign of a strong cyclical upswing. China’s recovery continued unevenly, with targeted stimulus providing intermittent support but failing to ignite a broad manufacturing rebound.

Central banks responded cautiously. The Fed kept policy unchanged and emphasised patience, signalling that further evidence would be required before rate cuts could begin in earnest. The “higher for longer” theme resurfaced in market pricing. In Europe, policymakers maintained a similar tone: inflation was easing, but geopolitical instability and energy uncertainty argued against haste. In the UK, the Bank of England remained divided internally, reflecting the delicate balance between cooling headline inflation and persistent domestic price pressures. Even Japan, long an outlier of ultra-loose policy, hinted at further gradual normalisation.

In equities, the pain was felt in the US, with the S&P 500 down 0.9% and the Nasdaq 3.4%, as rising real yields and geopolitical risks sapped appetite for long-duration growth. Technology stocks, particularly AI-related, endured bouts of profit-taking. NVIDIA, emblematic of the AI-driven rally of recent years, saw heightened volatility as investors revisited valuation assumptions in a firmer rate environment. By contrast, energy and defence stocks surged, buoyed by rising oil prices and expectations of increased military spending, which offered a clearer near-term earnings narrative. Europe’s sector mix proved advantageous: markets with heavier exposure to energy, industrials and banks outperformed their growth-heavy peers. The UK drew particular strength from its commodity bias and dividend profile, with the FTSE 100 up 6.7% and the Dax rising 3.0%. Asia told a more nuanced story. Japan’s Nikkei 225 surged 10.4%, propelled by yen weakness, robust corporate reforms and continued foreign inflows, while China’s Shanghai Composite edged up 1.1% as policy support helped stabilise sentiment. However, structural growth concerns continued to temper the advance.

In commodities, oil was the clearest beneficiary of geopolitical tension. Even without the confirmed supply disruption, the risk premium expanded rapidly. Traders recognised that any sustained escalation involving Iran carries immediate implications for global crude flows. Prices climbed sharply during periods of heightened rhetoric, and talk of a return to three-figure oil re-entered analyst commentary. The rally was rooted not in immediate scarcity but in forward uncertainty, a reminder that commodities often trade on fear long before fundamentals tighten. Precious metals provided a more complex narrative. Gold initially rallied on safe-haven demand, reflecting geopolitical anxiety. Yet as US yields firmed and the USD strengthened, bullion experienced a severe mid-month sell-off. Leveraged positioning was unwound, and exchange-traded fund inflows slowed. Rather than signalling a collapse in confidence, the move illustrated the powerful influence of real yields on metal pricing. Towards the month-end, gold regained its footing, closing up 7.2%, as unresolved geopolitical risk sustained underlying demand. Silver traced an even more volatile path, amplifying both the rally and the correction, to close up a tidy 18.8%.

Currency markets largely followed rate differentials. The USD strengthened modestly against both the EUR and GBP, supported by resilient US growth and reduced expectations of imminent Fed easing. The EUR remained stable but lacked any great impetus, while GBP faced mild pressure amid softer UK growth signals.

If any asset class revealed the fragility, it was crypto. Bitcoin and Ethereum both fell sharply during February, retracing a meaningful portion of their late-2025 gains. Rising real yields, a firmer dollar, and reduced liquidity appetite exposed the high beta of digital assets. Unlike gold, crypto did not benefit materially from geopolitical stress; instead, it behaved like a leveraged extension of risk sentiment. Derivatives liquidations amplified the correction, and market psychology shifted abruptly from optimism to caution. Crucially, there were no systemic breakdowns or infrastructure failures, and by month-end, bitcoin was down 14.3%.