March began where February left off – with investors trying to make sense of a world that keeps moving faster than financial models can follow. A record-breaking FTSE 100, a fractious US tariff saga, and then, at the very end of the month, a US-Israeli strike on Iran that changed everything again.

The UK: Strong Markets, Fragile Economy

The FTSE 100 has been the standout story of early 2026. The index hit 10,000 points on 2 January, crossed 10,686 by mid-February, and closed at 10,910.55 on 27 February – its eighth consecutive monthly gain, the longest winning streak since 2012/13. Sectors leading the charge included mining, defence, banking and pharmaceuticals, with Rolls-Royce shares surging on upgraded earnings forecasts.

The FTSE’s resilience is being partly explained by a structural shift in investor behaviour. Concern over the valuations of US technology stocks has prompted a rotation into international markets, with UK equities – cheaper by most conventional measures – a natural beneficiary.

Beneath the market performance, however, the underlying UK economy tells a more complicated story. The OBR downgraded 2026 GDP growth to 1.1%, unemployment reached a five-year high of 5.2% in the three months to December, and real wage growth is running at just 0.5% above inflation. The Bank of England voted 5-4 to hold rates at 3.75% in its February meeting, with Governor Andrew Bailey signalling scope for cuts later in 2026 – before the Iran situation complicated that picture entirely.​

Politically, the month was awkward for Sir Keir Starmer’s government. Labour lost the Gorton-and-Denton by-election to the Green Party, compounding an already difficult period for a Prime Minister who has faced questions over his authority since entering Downing Street.

The US: Tariff Chaos, Then Iran

The United States provided two major market-moving stories in February. On 20 February, the Supreme Court declared many of President Trump’s trade tariffs illegal, citing the method by which executive powers were used. Trump responded by announcing a new 10% global tariff under Section 122 of the Trade Act of 1974 – a route that allows the President to act without Congressional approval for up to 150 days. Within 24 hours, the figure had shifted to 15%, then back to 10%. Markets responded with predictable volatility.​

Then, on the morning of 28 February, the US and Israel launched strikes on Iran. President Trump announced the death of Supreme Leader Ayatollah Ali Khamenei. Iran declared the Strait of Hormuz closed. Qatar, Bahrain, Kuwait and the UAE – all home to US military bases – reported intercepting incoming missiles.

“Oil markets could confront their worst fears on Monday. We believe Brent crude could reach $100 per barrel, as the market wrestles with the risk of supply disruption escalating security concerns in the Middle East.” – Barclays analysts​

The attack happened on a Saturday – when markets were closed. This has become a pattern with the Trump administration, echoing the Liberation Day tariff announcements of March 2025. When markets reopened, stocks sold off sharply, defence shares rallied, gold jumped, and airline stocks fell on the prospect of sustained fuel cost increases.

US GDP growth was already slowing, expanding at just 1.4% annualised in Q4 2025, down from 4.4% the prior quarter. Technology stocks remained fragile, with investors questioning whether AI infrastructure spending will translate into commercial returns that justify current valuations – a question that no one has yet convincingly answered.​

Europe: Cautious Optimism, Budget Trouble in France

The Eurozone entered March in a more settled position than either the UK or US. Inflation fell to 1.7% in January – below the European Central Bank’s 2% target – and the ECB expressed confidence in the combination of low unemployment, private sector health and the early effects of German defence and infrastructure spending.​

France remains the exception. After failing to agree a 2026 budget through normal parliamentary process, Prime Minister Michel Barnier invoked Article 49.3 to pass a revised budget without a vote, abandoning most spending reduction ambitions in the process. The French deficit-to-GDP ratio will remain elevated as a result.

The EU’s completion of significant trade deals with India and Mercosur provides a longer-term positive backdrop, though global trade tensions cast an ongoing shadow over the picture.

The Far East: China Sets Targets, Japan Faces Questions

China entered its annual Two Sessions political meetings in early March, where markets expected the official 2026 growth target to be lowered to “above 4.5%”, down from the previous “around 5%” target. Purchasing Managers’ Index data had already shown contraction for several consecutive months, making the revision unsurprising. The IMF has been direct in its assessment: China must shift from an export-led model to one driven by domestic consumption, a structural transition that will take years to execute.

In Japan, newly elected Prime Minister Sanae Takaichi nominated dovish candidates to the Bank of Japan board, weakening the yen and raising questions about the pace of future rate rises. Hawkish board member Hajime Takata has continued to warn of inflation overshoot risks and the need to raise rates gradually – a minority view for now, but one that global investors are watching closely given Japan’s influence on emerging market capital flows.

Emerging Markets: Pockets of Strength

Emerging markets continued to attract investor attention in February, driven by distinct stories in different economies:

• Taiwan and South Korea are key nodes in the global AI supply chain. South Korea’s Samsung Electronics and SK Hynix are benefiting from surging demand for AI memory and semiconductors; technology-related goods now account for roughly 80% of Taiwan’s exports
• Brazil and Peru have benefited from strong metals and agricultural commodity demand
• Thailand and Turkey have been supported by improved financial conditions and cyclical recovery

The Iran conflict introduces new variables for emerging markets, particularly those exposed to energy import costs or regional instability.

The Iran Question: What Comes Next

Iran produced 3.4 million barrels of crude oil per day in January 2026, representing roughly 3% of global supply, much of it flowing to China via shadow fleets to circumvent sanctions. The extent to which that infrastructure has been damaged – and whether the Strait of Hormuz remains effectively open – will determine how severe the oil price shock becomes.​

Analysts at the time of the strikes warned that Brent crude could reach $100 per barrel if conflict persists without de-escalation. Oil prices were already rising before the strikes began, meaning any sustained disruption arrives into an already stressed energy market.​

In Summary

• The FTSE 100 hit record highs in February, closing above 10,900 on its eighth consecutive monthly gain, outperforming US and European peers
• The US Supreme Court struck down Trump’s tariffs; he responded with new tariffs under Section 122, creating significant market volatility​
• US-Israeli strikes on 28 February killed Iran’s Supreme Leader and triggered potential Strait of Hormuz closure, with Brent crude tipped to approach $100 per barrel
• UK growth was downgraded to 1.1% for 2026, but a record £30.4 billion January surplus gave Reeves modest fiscal breathing room
• Eurozone inflation at 1.7% offers relative stability; French budget dysfunction is the bloc’s main political headache
• China is expected to lower its growth target; Japan’s monetary direction remains a key variable for global capital flows

For investors, the lesson of early 2026 is one that keeps repeating: the rewards have been real for those who held their nerve through volatility – but the test of that conviction is only just beginning.

Disclaimer

It is crucial to note that while this commentary accurately reflects record market highs prior to the end of February (with the FTSE 100 closing above 10,900 on 27 February), the US-Israeli strike on Iran on 28 February has introduced significant volatility. Since then, global markets, including the FTSE and DOW, have fallen back sharply as the world reprices risk. This remains an ever-changing situation, particularly given the potential for further announcements from the Trump administration. Our advice remains to stay invested and ‘ride out’ the current storm.