The FTSE 100 index concluded a challenging week on a downward trajectory, primarily influenced by surging oil prices that exceeded $90 per barrel. This rise in energy costs has ignited inflation fears, causing significant shifts in both UK bond yields and market sentiment. Simultaneously, a disappointing US jobs report added to the pessimism that swept through European and American markets.
Market Performance Overview
On Friday, the FTSE 100 fell by 129.19 points, or 1.2%, closing at 10,284.75. The FTSE 250 also faced a decline, down 199.25 points, or 0.9%, to finish at 22,500.95, while the AIM All-Share dipped by 3.66 points, or 0.5%, to close at 784.70. Over the week, the FTSE 100 recorded a significant loss of 5.7%, the FTSE 250 dropped 5.3%, and the AIM All-Share fell by 4.2%.
The price of Brent crude oil rose sharply to $90.85 per barrel on Friday afternoon, a notable increase from $84.41 just a day earlier. This surge was amplified by Kuwait and Qatar’s decision to halt energy production amid escalating tensions in the Middle East.
Geopolitical Tensions Impacting Markets
Kathleen Brooks, research director at XTB, highlighted that US President Donald Trump has dampened hopes for a swift resolution to the ongoing conflicts in the Middle East, further exacerbating market fears. Reports of attacks on oilfields in southern Iraq, along with a US-run oil field being forced to cease production, have intensified these concerns.
In a statement on Friday, US Energy Secretary Chris Wright indicated that the US Navy is preparing to escort vessels through the strategic Strait of Hormuz, a pivotal shipping route for oil. The situation escalated with Iranian state media reporting a drone strike on a ship within the Strait, underscoring the volatility in the region.
Bank of America has cautioned that historical data suggests only pronounced and sustained increases in oil prices lead to persistent inflationary cycles. They noted, “If the status quo persists, with oil prices around $15 higher than pre-war levels, we would downplay inflation concerns. However, a continued escalation pushing prices over $100 could become worrisome.”
US Job Market Weakness Adds to Economic Woes
Compounding the market’s troubles, the US Bureau of Labour Statistics reported a decline in non-farm payroll employment, with a loss of 92,000 jobs in February, sharply contrasting with expectations of a 59,000 increase. This disappointing performance prompted a revision of January’s job growth down to 126,000 from an initial estimate of 130,000, while December’s figures were also adjusted downward.
The unemployment rate ticked up to 4.4%, a slight increase from January’s 4.3%. Analysts at Wells Fargo remarked that this data challenges the previously optimistic view among Federal Reserve officials regarding labour market stability, especially in light of the Iran conflict that further complicates economic forecasts.
They stated, “Ultimately, the Federal Reserve cannot effectively address inflation arising from a supply-side oil price shock. Nevertheless, the inflationary impact of the situation in Iran complicates their position.”
Rising Bond Yields Reflect Investor Concerns
The spike in energy prices has exerted pressure on bond markets, with expectations of delayed interest rate cuts due to anticipated higher inflation. The yield on the US 10-year Treasury rose to 4.16% from 4.15%, while the 30-year Treasury yield increased to 4.78% from 4.76%. The UK market saw similar trends, with the yield on 10-year gilts climbing to 4.61%, up from 4.48% just a day prior.
Allan Monks, an analyst at JPMorgan, noted the UK’s vulnerabilities amid the current energy crisis, given its heavy reliance on natural gas and a weakening labour market. He indicated that a rate cut from the Bank of England in March is “off the table,” and any potential cut in April would require a significant easing of geopolitical tensions.
In contrast, Barclays maintains a forecast for a modest 25 basis point cut, acknowledging that the decision remains precarious. “If geopolitical uncertainty persists, or economic data exceeds expectations, the balance could easily shift towards holding rates steady,” they added.
European and US Markets Reflect Broader Trends
European markets mirrored the negative sentiment, with France’s CAC 40 and Germany’s DAX 40 both declining by 0.9%. On Wall Street, the picture was similarly bleak, as the Dow Jones Industrial Average fell by 1.1%, the S&P 500 dropped by 1.0%, and the Nasdaq Composite experienced a decline of 0.8%.
Despite the downturn, the pound strengthened against the dollar, rising to $1.3387 from $1.3309. The euro also gained, trading at $1.1597, up from $1.1574. Gold prices climbed to $5,142.35 per ounce, reflecting investors’ flight to safety amid market volatility.
Notable Company Movements
Several companies made headlines on Friday. IMI, based in Birmingham, saw a 2.3% increase in its shares after announcing a £500 million share buyback, buoyed by a 27% rise in pre-tax profit for 2025. Conversely, rate-sensitive housebuilders suffered losses, with Barratt down 2.6% and Berkeley falling 3.0%. The DIY retailer Kingfisher experienced a significant drop of 5.2%. Meanwhile, cruise operator Carnival continued to struggle, shedding 6.4% as travel operators faced mounting pressures.
Why it Matters
The current turmoil in global markets underscores the interconnectedness of geopolitical events and economic stability. The surge in oil prices not only affects consumer energy costs but also raises inflationary pressures that could lead to stricter monetary policies. As the situation evolves, investors and consumers alike should remain vigilant, as these dynamics play a crucial role in shaping the economic landscape in the coming months.