Global markets ended the week navigating a complex mix of artificial intelligence disruption fears, intensifying US-Iran tensions, and shifting monetary policy expectations. While US futures attempted a modest rebound, equity benchmarks across Asia delivered a mixed performance as investors reassessed risk exposure.

At the centre of the narrative: rising oil prices, renewed geopolitical uncertainty, and growing questions about how AI-driven transformation may reshape entire industries.

Oil Climbs as US-Iran Tensions Escalate

Crude prices surged to their highest level in six months after President Donald Trump warned Iran it had roughly two weeks to reach a nuclear agreement. Meanwhile, the US expanded its military presence in the Middle East, including aircraft carriers and fighter jets, increasing the risk premium embedded in energy markets.

• Brent crude oil rose above $72 per barrel.
• West Texas Intermediate crude climbed toward $67 per barrel.
• Weekly gains exceeded 6%.

A potential military confrontation would threaten oil flows from a region responsible for roughly one-third of global supply. Unsurprisingly, investors rotated toward traditional safe havens, lifting gold and the US dollar. The geopolitical backdrop has halted what had been a tentative recovery in global equities after weeks of volatility tied to AI-related disruption concerns.

Asia Markets Mixed: Financials and Tech Under Pressure

Asian equities reflected the cautious tone.

Japan: The Nikkei 225 fell 1.2%, dragged lower by financial institutions exposed to private credit risks. Shares of Mitsubishi UFJ Financial Group dropped after its US partner, Blue Owl Capital, restricted withdrawals from one of its funds, triggering concerns about liquidity stress in private credit markets.

Major exporters also weakened:

• Toyota Motor Corporation declined nearly 4%.
• Sony Group Corporation fell over 3%.

Hong Kong & China: The Hang Seng Index slipped as trading resumed after Lunar New Year holidays, while mainland Chinese markets remained closed.

South Korea: The Outperformer

In contrast, the KOSPI surged over 2%, extending its position as one of the best-performing markets globally this year. Defence stocks led gains. Rising global military spending and continued retail enthusiasm tied to AI-related optimism have underpinned South Korea’s equity strength in 2026.

Wall Street Struggles With AI Disruption Fears

US markets closed lower Thursday. AI-related disruption remains a dominant theme. Several companies reported solid earnings but still faced sharp sell-offs, reflecting investor anxiety that artificial intelligence could rapidly erode traditional business models.

• Booking Holdings fell over 6% despite beating expectations. The stock is down roughly 25% this year amid concerns about AI-powered competition.
• Carvana dropped nearly 8% despite stronger profits.
• Walmart swung from gains to losses after issuing a cautious outlook.

Meanwhile, energy stocks benefited from rising crude prices. Occidental Petroleum surged over 9% following stronger-than-expected earnings.

Dollar Strength and Fed Policy in Focus

The Bloomberg Dollar Spot Index is on track for its strongest weekly performance in four months, as traders scale back expectations for Federal Reserve rate cuts. Higher oil prices could complicate the Fed’s path. Policymakers have reiterated they want clearer evidence that inflation is cooling before easing further. Rising energy costs risk reigniting price pressures.

Economic data delivered mixed signals:

• Jobless claims declined, suggesting layoffs may be stabilising.
• Manufacturing activity in the mid-Atlantic region accelerated.
• The US trade deficit widened more than expected.

The US dollar gained against the yen while the euro edged lower, reflecting haven demand and shifting rate expectations.

ECB Leadership Speculation Adds European Uncertainty

Attention also turned to Europe, where Christine Lagarde addressed speculation about a potential early departure from the European Central Bank.

Lagarde reaffirmed that her ‘baseline’ is to complete her term, emphasising her mission of safeguarding price stability and protecting the euro. However, reports suggesting political manoeuvring ahead of French elections have stirred debate about institutional independence.

The uncertainty adds another layer of complexity to European market sentiment at a time when global risk appetite is already fragile.

UK Consumer Resilience Surprises

In contrast to broader caution, UK retail sales posted their strongest growth in 20 months.

According to official data:

• January sales volumes rose 1.8%, well above expectations.
• The budget surplus hit a record high for the month.

Improving inflation trends and earlier rate cuts appear to be supporting consumer confidence. For policymakers, the data offers cautious optimism that economic momentum may be stabilising.

Emerging Markets Under Pressure

Emerging Asian equities and currencies weakened as rising oil prices and Middle East tensions dampened risk appetite.

A sustained rise in energy costs could weigh heavily on oil-importing nations while boosting commodity exporters. Currency volatility is likely to remain elevated if geopolitical risks intensify.

The Bigger Picture: Fragile Recovery Meets Geopolitical Risk

Markets are currently balancing three powerful forces:

1. AI-driven structural disruption
2. Geopolitical escalation in the Middle East
3. Uncertain central bank policy paths

Oil’s six-month high underscores how quickly geopolitical developments can reshape risk sentiment. At the same time, concerns about artificial intelligence disrupting traditional sectors continue to pressure specific industries.

For now, investors appear cautious rather than panicked, rotating selectively into energy, defence, and safe-haven assets while trimming exposure to sectors perceived as vulnerable to technological disruption.

Whether diplomacy prevails in the Middle East and whether inflation remains contained will likely determine the next decisive move across global markets.