Financial Market Repercussions From Broadening Middle East War
March 2, 2026
(150) Hot money flows seeking a safe haven lifted the dollar by almost a full percent on a weighted basis. Individual gains amount to 1.2% against the Swiss franc, 1.0% versus the New Zealand dollar, 0.9% to a 5-week high relative to the euro, 0.9% against the Korean won, 0.8% vis-a-vis the Australian dollar and Japanese yen, 0.6% against sterling but just 0.2% versus the Canadian dollar.
Silver and gold, which were huge winners in February, extended gains by 2.4% and 2.1%.
With the Strait of Hormuz effectively blocked, West Texas Intermediate crude oil catapulted 8.8% above Friday’s close and 33% above December’s low. Just last week, President Trump was citing lower energy prices as one of his accomplishments of 2025.
Elevated Middle Eastern uncertainties have adverse near-term growth implications, yet ten-year sovereign debt yields rose overnight by 8 basis points in Italy, 7 bps in France and Spain, 11 bps in Great Britain, six bps in Germany, 5 bps in the U.S. and 3 basis points in Switzerland. This reflects the adverse implications for inflation and the stampede out of riskier equity assets.
All four major U.S. stock future indices are down over 1.0%. Equity markets in Asia closed down 2.1% in Hong Kong and Singapore, 2.7% in Indonesia, 1.4% in Japan, and 1.3% in India. German, French, Italian, and Spanish equities are so far each more than 2.0% lower, while the British FTSE is down only 1.3%.
The data menu this first business day of March is dominated by manufacturer purchasing manager surveys taken last month. The Asian PMI readings are mostly above January scores: a 99-month high of 54.6 in the Philippines; a 23-month high in Indonesia of 53.8; a 45-month Japanese high of 53.0 (revised from a preliminary 52.8 reading); a 50-month high in Taiwan of 55.2; a 4-month Vietnamese high of 54.3; and a slight downwardly revised but still 4-month high of 56.9 in India. Malaysia, whose manufacturing PMI fell by 0.3 index points to a 9-month low of 49.3, is the odd man out and only one of the above result below the 50 threshold that separates improving conditions from deteriorating ones.
Euroland’s 44-month high manufacturing PMI reading of 50.8 is unrevised from the preliminary estimate for February. The data suggest that manufacturing may be turning the corner, but the pace of recovery is quite subdued and faces risks such as newly elevated energy costs, Trump’s tariffs, competition from China, and structural shortages. Seven of the eight individual joint currency economies had readings of 50.0 or better, Austria’s 49.4 being the one exception. Germany’s 44-month high of 50.9 was the highest reading among Euroland’s big four, and France (50.1) and Spain (50.0) had the softest scores among the big four. The advent of recovery in Euroland’s manufacturing sector was regrettably accompanied by strongest inflationary signal in quite some time.
The British manufacturing PMI in February got revised a tad lower to a 2-month low of 51.7. However this followed January’s 17-month high of 51.8. Other U.K. data releases today include an unchanged 1.0% year-on-year increase in the Nationwide house price index and softer-than-forecast mortgage approvals in January totaling about 60,000.
The Swiss PMI fell 1.4 index points to a 2-month low of 47.4.
Factory sector PMIs from eastern Europe reported today include a 6-month Polish low of 49.1 and a record low Romanian PMI of 45.3 but also a 22-month Turkish high of 49.3, a 9-month high Russian reading of 49.5, a 2-month high Czech score of 50.0, and a 2-month high Hungarian reading of 51.3.
Australia‘s manufacturing PMI in February has been revised from a preliminary 51.8 estimate to show the slowest expansion rate in four months with a score of 51.0. Brazil‘s manufacturing PMI rose 0.3 points but, at 47.3, still depicts a significant recessionary conditions. The Absa-compiled South African PMI dropped 1.3 points to indicate a steepening slump with a reading of 47.4. At the other end of the spectrum, Sweden enjoyed more rapid manufacturing sector growth with a 49-month high PMI reading of 56.1.
The S&P Global U.S. manufacturing PMI was revised upward by 0.2 index points but, at 51.6, depicts the slowest expansion in seven months. Canada’s manufacturing PMI also scored a 51.6 reading but in contrast was its highest in 13 months.
Unrevised quarterly GDP growth rates in 4Q 2025 were reported for Turkey of 0.4%, a 6-quarter low; Poland of 1.0%; Lithuania of 1.7%, most in 19 quarter; 1.4% in Cyprus; 1.0% in Serbia; and Estonia of -0.6%. Compared to a year earlier, GDP last quarter was up 3.4% in Turkey, 4.0% in Poland, 3.1% in Lithuania, 2.2% in Serbia,4.5% in Cyprus, and 0.7% in Estonia. For 2025 as a whole, GDP grew 3.6% in Turkey and Poland, 3.8% in Cyprus, and 2.9% in Lithuania.
Italian GDP posted its third straight calendar year growth of less than 1.0%. The 0.5% pace in 2025 was less than 0.8% in 2024 and 0.9% in 2023.
Price data released today included
- A 35-month high consumer price inflation rate in Indonesia of 4.8%, but core inflation was only 2.6%.
- Producer price inflation in Sri Lanka, which famously swung from 105.2% in August 2022 to -7.3% in September 2023, has more recently risen five-fold from 0.6% in November to 3.0% two months later.
- Bulgarian CPI inflation slowed to a 14-month low of 3.3% last month from 3.5% in January.
German retail sales fell much more sharply than forecast in January (-0.9%), halving its year-on-year increase to 1.2%. In Switzerland, retail sales went up by a smaller-than-predicted 1.1% in January and recorded its greatest year-on-year decline (-1.1%) in 19 months.
Copyright 2026, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: financial market fallout from Mideast war, manufacturing PMI readings February 2026
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