UK & European Indices Slide as Iran War Continues

UK and European stock markets have fallen sharply Tuesday morning, with the Euro STOXX 600 down over 2% in early trade. Likewise S&P 500 futures fell sharply early on Tuesday as Brent crude oil climbed over $80 per barrel, while a haven bid for the US dollar saw GBP/USD drop back towards 1.33, a near 3-month low. The FTSE 100 closed lower on Monday, with Shell benefiting from higher oil prices while IAG, other travel stocks and major UK banks dropped heavily. Spot gold eased to $5,300 Tuesday after briefly rising above $5,400 on Monday.

Equities

The FTSE 100 closed down 1.2% on Monday, pulling back from the record high it had reached in the previous session. The mid-cap FTSE 250 fell 1.4%, as rising tensions in the Middle East unsettled investors and pushed oil prices sharply higher.

Oil majors stood out. Shell plc closed 1.9% higher on Monday as crude prices surged nearly 7% after disruption to shipping through the Strait of Hormuz. Defence contractor BAE Systems climbed 6% by the close, reflecting expectations of sustained military spending following intensified US and Israeli strikes on Iran and retaliatory action in the region.

Airlines and banks moved in the opposite direction. International Airlines Group, which owns British Airways, fell 5.5% on Monday after confirming it had cancelled flights to Tel Aviv and Bahrain until March 3. The wider travel and leisure index dropped 4.3%, with hotels and cruise operators also under pressure. Among lenders, HSBC Holdings, Barclays and Lloyds Banking Group closed between 2.5% and 4.2% lower as bond yields rose and traders reduced expectations of a near-term interest rate cut from the Bank of England.

In the US, futures signalled a weaker open early on Tuesday. Contracts on the Dow Jones Industrial Average were down 1.01%, S&P 500 futures fell 1.05% and Nasdaq 100 futures dropped 1.33% at 02:41 a.m. ET, as investors weighed higher oil prices and the closure of the Strait of Hormuz.

Late on Monday, the cash S&P 500 ended flat, the Nasdaq Composite added 0.4%, and the Dow Jones Industrial Average slipped 0.1%. Technology heavyweights Nvidia and Microsoft attracted buyers during the session, helping the Nasdaq close higher, while travel and airline stocks fell on flight cancellations and rising jet fuel costs.

Forex & Commodities

The US dollar strengthened late Monday through early Tuesday as conflict in the Middle East intensified, with the dollar index rising and holding near a five-week high early on Tuesday.

The euro fell to $1.1690, while the dollar climbed to 157.4 against the Japanese yen and to 0.7790 against the Swiss franc. The dollar also pushed higher against the British pound. The scale and liquidity of US Treasury markets continued to attract demand as a haven.

Oil prices settled sharply higher on Monday after US and Israeli strikes on Iran and retaliatory action from Tehran disrupted energy infrastructure and shipping through the Strait of Hormuz. US crude closed at $71.23 per barrel, while Brent settled at $77.74. Iranian officials said the waterway had been closed and warned that vessels attempting to pass through could be targeted, raising concerns about supply.

Spot gold rose before falling back late on Monday as investors initially sought protection amid the escalation before pressure from a rising dollar weighed on metals prices. Early on Tuesday, bullion eased to $5,305 as the firmer dollar limited further gains. Silver fell to $84.25 per ounce and platinum dropped to $2,201, both retreating after strong advances in the previous session.

In bond markets, the yield on the US 10-year Treasury note rose to 4.038%, while the two-year yield moved up to 3.477%, reflecting reduced expectations of near-term Federal Reserve rate cuts.