February: Conflict, courts and central banks – A volatile month for markets
February was already shaping up to be an eventful month for investors, but events in Iran in the early hours of Saturday 28th saw the month end in dramatic fashion. The US and Israel have launched what President Trump called ‘major combat operations’ in Iran, with strikes on Tehran reportedly killing Supreme Leader Ayatollah Ali Khamenei and other senior officials, leaving a power vacuum in the country. Prior to the conflict unfolding, markets had been digesting the much-anticipated ruling from the US Supreme Court that President Donald Trump’s widespread tariffs were unlawful. The President was quick to act in the aftermath of the decision, imposing a new blanket 10% tariff rate to all imports, which saw some countries imports more impacted than before, whereas others would be less so.
US-Iran strikes rattle investment markets, as investors take flight to safety
- Global equities declined and oil prices jumped as the escalating conflict between the US and Iran unsettled sentiment Gold and the dollar rise in a rush for safe havens.
- Brent crude oil jumped toward $73 per barrel at the end of February and into early March, as the US-Iran conflict disrupted activity around the Strait of Hormuz, a critical transit route responsible for roughly a fifth of global oil supply, Bloomberg reported.
- Investors rotated into defensive assets, with the price of gold rising more than 2% and the US dollar strengthening as risk appetite deteriorated amid concerns over potential impacts to global trade and inflation, according to Bloomberg.
The Bank of England opt for an interest rate cut, but the UK government still has a large debt hill to climb
- The Bank of England voted to keep Bank Rate unchanged at 3.75%, following December’s rate cut. Though the decision was notably divided with four of the nine Monetary Policy Committee (MPC) members unexpectedly voting in favour of an immediate rate cut, highlighting growing confidence that inflation pressures are easing.
- Governor Andrew Bailey stated that inflation is now expected to return to the 2% target by April, almost a year earlier than previously forecast. He also acknowledged that market pricing for two rate cuts this year was “reasonable,” signalling a clear shift toward a more accommodative policy outlook.
- The UK government recorded a £40.9bn surplus on the public sector current budget measure in January, £18bn higher than a year earlier and £5.6bn above the Office for Budget Responsibility’s (OBR) forecast. Strong self-assessment payments drove central government revenue growth of 13.8%, well ahead of the OBR’s 12% projection.
- However, conclusions should be drawn cautiously until February data is available, particularly as this year’s self-assessment deadline fell over a weekend.
Trump Upended, but tactical manoeuvring allowed the President to re-introduce his tariff regime
- A Supreme Court ruling in February upended the US administration’s signature trade policies. The ruling disallowed the administration’s use of emergency powers to justify the avalanche of tariffs over the past year, and while it wasn’t entirely unexpected, it does point to a policy reset.
- Unsurprisingly, Trump quickly took to the press to announce an initial 10 percent replacement tariff using another lever at his disposal. Markets have responded negatively as renewed tariff fears have rattled investor sentiment.
- Federal Reserve (Fed) minutes showed policymakers remain divided on the appropriate path for monetary policy, with some open to easing if inflation cools while others flagged the possibility of further tightening should inflation persist.
- Core Personal Consumption Expenditures (PCE) (the Fed’s preferred inflation gauge) rose 0.4% month-on-month and 3.0% year-on-year in December, up from 0.2% and 2.8% respectively in November. Headline PCE rose 2.9% year-on-year, the highest since March 2024.
Japan’s prospects go from strength to strength amid new leadership and bold fiscal plans
- Japanese stock markets surged on the outcome of Japan’s 8th February lower house election, where Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) secured a supermajority, winning more than two-thirds of seats.
- Her LDP won 316 out of 465 seats, the first time a single party has won a two-thirds majority in the lower house since the creation of the country’s current parliamentary format in 1947. The result was welcomed by investors, due to the leader’s pursuit of “responsible yet aggressive fiscal policy”.
- Her proposed policy agenda focuses on strong fiscal spending, investment, and targeted tax cuts. It also opened the door to her government pursuing an amendment to Japan’s constitution, specifically the pacifism clause enshrined in it, for the first time since the end of World War II. This could open the door to strong defence spending in the coming years.
The market reaction to the conflict in Iran will not be felt until the early days of March, so as markets closed for the end of February it was the other events of the month that drove returns. The election result in Japan saw the region be a key standout for equity investors, posting double digit returns. Emerging Markets also enjoyed strong gains, as investors continue to diversify away from US markets, and volatility was felt in mega-cap US tech names.
In summary
While February’s headlines were dramatic, it’s important to remember that markets are designed to absorb uncertainty — whether geopolitical conflict, court rulings or shifting trade policy. Periods like this can create short-term volatility, but they rarely change the long-term drivers of returns. Well-diversified portfolios are built with exactly these moments in mind, spreading risk across regions and asset classes so that no single event dictates outcomes. Our focus remains on maintaining disciplined, evidence-based investment strategies aligned to your goals, rather than reacting to short-term noise. As always, we continue to monitor developments closely and will make measured adjustments where necessary, keeping your long-term financial plan firmly on track.