Market Review 23rd February 2026

Everything you need to know, Simplified!

Summary

• European and UK equities reached fresh highs, supported by strong earnings and a continued rotation into cyclicals and ‘old economy’ sectors, as investors broaden leadership beyond US mega-cap technology

• The US Supreme Court struck down President Trump’s sweeping global tariffs under the International Emergency Economic Powers Act; markets appear comfortable that trade tensions are unlikely to escalate materially in the near term, though policy uncertainty remains

• Oil prices rose more than 5% on the week as US–Iran tensions intensified, reintroducing a geopolitical risk premium and raising the possibility of further volatility in energy markets

• UK inflation slowed to 3.0% and labour market conditions softened, strengthening the case for Bank of England (BoE) rate cuts; in contrast, the Federal Reserve (Fed) signalled patience, supporting the US dollar and reinforcing policy divergence across regions

• In the week ahead, with limited macro data, focus will remain on US trade developments, geopolitical risks in the Middle East and the durability of the ongoing rotation in equity markets.

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Market Review

European and UK equities push to fresh highs

European equities closed at a fresh record high, rising 2.3% over the week, while UK equities gained 2.5%, also hitting fresh highs while extending their year-to-date strength. The advance was driven primarily by strong earnings and continued rotation into cyclicals, particularly industrials and consumer-facing names.

Performance reflects a combination of improving sentiment toward European growth and more attractive relative valuations compared with the US. After a prolonged period of underperformance, investors are increasingly willing to re-engage with the region as earnings resilience becomes clearer.

The UK market also benefited from this rotation. Its heavy exposure to energy, materials, financials and other ‘old economy’ sectors continue to work in its favour in an environment where investors are broadening leadership beyond US mega-cap technology companies. Many of the UK’s largest companies also earn a significant proportion of their revenues overseas, which has helped cushion the impact of slower growth at home.

The US Supreme Court ruled against President Trump’s sweeping global tariffs under the International Emergency Economic Powers Act, determining that the statute does not authorise the President to impose tariffs. The decision struck down Trump's reciprocal tariffs applied globally, as well as targeted import taxes the administration said were meant to address fentanyl trafficking.

This ruling represents Trump's biggest legal defeat since returning to the White House and undercuts his signature economic policy. The White House swiftly pivoted to alternative tariff mechanisms reinforcing a global 15% levy on all global trade. Equity markets appear comfortable that trade tensions are unlikely to escalate materially in the near term while domestic legality is the main component of trade uncertainty.

Oil rises as geopolitical tensions escalate

Brent crude moved back above US$71 per barrel and West Texas Intermediate approached US$67, marking weekly gains of more than 5% and the highest levels in around six months. The move reflects escalating tensions between the US and Iran, with Washington signalling that diplomatic patience may be running thin.

The President has given Iran a two-week ultimatum to agree a new nuclear deal or face serious consequences - a clear threat of military action. This would most likely be a limited and targeted strike.

The US has significantly increased its military presence in the region, representing the largest build-up since the 2003 invasion of Iraq. Shipping costs on key Middle East routes have surged, with supertanker hire rates nearly tripling this year.

With the geopolitical premium returning there is a risk that further escalation produces a sharp, temporary spike. Such moves would tighten financial conditions and weigh on global growth expectations.

Inflation and interest rates

UK inflation slowed to 3.0% in January from 3.4%, the lowest level since early 2025. Combined with a softer labour market, unemployment rising to 5.2% and moderating private sector wage growth, the data strengthened the case for a March rate cut from the BoE. Money markets now anticipate two 25 basis point reductions by year-end, with around an 80% probability assigned to a March cut.

Gilt yields edged lower, with the 10-year closing at 4.35%. The combination of softer inflation, labour market cooling and weak growth provides policymakers with greater flexibility, even as fiscal and political uncertainties linger.

In contrast, Fed officials in the US signalled a more patient stance. Several policymakers indicated rates may remain unchanged for “some time”, reflecting a resilient labour market and signs of firming goods inflation. The dollar recorded its strongest week in four months as rate cut expectations were pared back.

In Europe, inflation dynamics look more favourable near term, though bunds may remain rangebound given rising defence spending and associated government bond supply. In Japan, softer inflation (national CPI slowed to 1.5% in January from 2.1% in December) and promises of measured fiscal expansion from the new Prime Minister benefited long-dated Japanese government bonds.

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The week ahead

With a relatively light macro calendar, attention will remain firmly on US trade policy following the Supreme Court’s decision and the administration’s response. Markets will watch closely for any escalation through alternative tariff channels and for signs of pushback from trading partners.

Geopolitics will also remain front of mind. Any further deterioration in US–Iran relations could inject renewed volatility into energy markets and risk assets, particularly if oil prices extend their recent gains.

Finally, as earnings season continues and with some significant companies due to report this week, investors will look for confirmation that the broadening of equity leadership beyond US mega-cap technology is sustainable.

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