Markets Today: Chaos as Middle East conflict widens, natural gas jumps 22%, DXY at five-week highs & FTSE 100 retreats
BY
Ben Graham
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Most Read: Weekly Gold (XAU/USD) Forecast: US-Iran standoff trumps US PPI, setting stage for $5300/oz
Markets are in a state of shock following a tumultuous weekend in the Middle East after the US/Israel launched what it called a “pre-emotive” strike on Iran. The move took out the Iranian Supreme Leader Sayed Ali Khamenei and other top officials but has led to a seismic response from the IRGC (Iranian Revolutionary Guard Corps).
The response by Iran has seen attacks on neighboring GCC countries housing American bases. Overnight, Hezbollah sent missiles at Israel as well with Israel now launching attacks in Lebanon as well.
This morning brought a significant escalation in the regional conflict as coordinated aerial threats targeted multiple locations across the Middle East and Mediterranean.
Kuwaiti air defenses successfully intercepted hostile drones, prompting the U.S. embassy to issue an urgent "take cover" warning for personnel and citizens. Nearby, witnesses reported a heavy emergency response presence and captured footage of black smoke rising near the embassy grounds.The instability extended into the United Arab Emirates and Qatar, where loud blasts were heard in Dubai, Doha, and the Samha region near Abu Dhabi.
Meanwhile, Britain's Royal Air Force base at Akrotiri in Cyprus was struck by a drone overnight, the first such assault on the facility since 1986. While the Cypriot presidency and the British Ministry of Defence confirmed the strike caused only limited damage and no casualties, the event marked a sharp intensification of hostilities across the region.
What comes next is anyone's guess as Iranian leadership have stated that they have decentralized the command structures of the IRGC, allowing commanders to act quicker and more decisively.
The impact on global markets
Oil prices surged and the US Dollar jumped as safe haven demand continued to ratchet up. Brent crude jumping approximately 10% to $79.90 and US crude climbing over 8% to $72.64.
Market participants simultaneously sought refuge in safe-haven assets, driving gold prices up 2.6% to $5,413 an ounce. A primary focus of concern remains the Strait of Hormuz, a critical artery for 20% of the world’s seaborne oil and liquefied natural gas.
Although the waterway remains open, marine tracking data reveals a growing bottleneck of tankers as operators weigh the risks of attack and rising insurance hurdles. This prolonged price surge threatens to reignite global inflation while acting as a functional tax on consumers and businesses.
The volatility triggered a widespread retreat in global equities. European and Asian markets saw significant losses, with banking and airline sectors hit particularly hard due to fears of stifled economic growth and rising fuel costs.
Europe's broad STOXX 600 slid 1.7%, after Asia Pacific ex Japan shares had fallen 1.8% and the US S&P 500 futures were down 1.5%.
Conversely, energy and defense stocks surged to record highs, with giants like BP and Shell gaining nearly 6%.
In the Middle East, "exceptional circumstances" led the UAE and Kuwait to temporarily suspend trading on their stock exchanges. While most global indices tumbled, Chinese blue-chips managed a modest gain, despite the country's heavy reliance on Middle Eastern oil imports.
European natural gas futures surged more than 22% to above €39/MWh on Monday, nearing their June highs. A sustained disruption in the Middle East would likely ripple across the globe, significantly impacting Asian buyers and driving a surge in demand for US liquefied natural gas (LNG).
This shift would further constrain the global gas market, creating a challenging spillover effect for Europe. These risks are particularly acute because European Union gas storage levels are currently sitting below 31%, a notable decline from the 40% levels recorded during the same period last year leaving the region with a thinner buffer against supply shocks.
German retail sales fall more than expected
German retail sales experienced a sharper-than-expected contraction of 0.9%, falling short of the modest 0.2% decline projected by analysts.
This downturn followed an upwardly revised 1.2% growth in December, signaling a shift toward consumer caution at the start of the new year. Much of the weakness was concentrated in the non-food sector, which saw a 1.7% drop in sales, even as demand for essential food items remained flat.
In contrast, the e-commerce sector remained a bright spot, with online and mail-order sales climbing 2.5% despite the broader retail cooling.
On an annual basis, retail trade grew by 1.2%, a slowdown from the revised 2.5% expansion seen in December, which had represented a five-month high for the industry. While the January figures suggest a hesitant start to 2026, they follow a relatively robust performance in 2025, during which total retail sales grew by 2.7%.
How did FX markets react?
On the FX front, the Swiss franc surged to its strongest position against the euro in over a decade, appreciating 0.7% to 0.9030 in early Asian trading. The franc also gained 0.4% against the dollar, reflecting a broader rush toward traditional safe-haven assets.
Simultaneously, the US dollar index climbed 0.3% to hit a five-week high of 98.273, its strongest level since late January.
In contrast, the euro fell 0.8% to $1.1725 due to mounting concerns over European energy supply disruptions, while sterling dropped 0.9% to $1.3372 following news that a Shahed drone had targeted Britain's RAF Akrotiri base in Cyprus.
The heightened risk aversion heavily impacted commodity-linked currencies, with the Australian dollar tumbling 1.2% and the New Zealand dollar sliding 0.8% against the greenback.
Meanwhile, China's offshore yuan weakened by 0.3% to 6.8801 per dollar after the People's Bank of China adjusted its daily fixing to curb further appreciation. As a major energy importer and the primary purchaser of Iranian oil, China remains particularly sensitive to the volatility currently rattling the global currency and energy markets.
Currency Power Balance
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Economic calendar and final thoughts
The day ahead will be quiet in the Euro Area after some data releases this morning.
Looking ahead to the US session, market attention this week is expected to shift away from scheduled economic data and toward the unfolding crisis in the Middle East.
While geopolitical headlines dominate, the US financial calendar still features the February ISM manufacturing report, with particular focus on the "prices paid" component as a gauge for inflationary pressure.
Technically, the US Dollar Index (DXY) has already breached key resistance at the 98.00 level. Without an immediate de-escalation of regional tensions, analysts suggest the index could climb toward 100.00 within the month.
This sudden flight to safety has effectively halted the stable market conditions that many expected would lead to a gradual dollar decline throughout the year.
Chart of the Day - FTSE 100
From a technical perspective, the FTSE 100 index continues to hold comfortably above the 100-day MA.
Having printed fresh highs on Friday around the 10935 handle the index is experiencing a pullback with the rise in geopolitical risks.
For now though, bulls remain firmly in control even though a deeper pullback to support around the 10700 and 10650 mark cannot be ruled out.
Only a four-hour candle close below the higher low swing point at 10786 would lead to a change in structure and could lead me to reevaluate my outlook.
Immediate support rests at 10786 before the 10650 handle comes into focus.
Resistance to the upside at 10857 needs to be cleared if bulls are to make a run for the 10935 handle and beyond.
FTSE 100 Index Four-Hour Chart, March 2, 2026
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