Daily market update: Middle East tensions, oil, gold, Unilever, Kraft foods

The Fed and Bank of England are in a state of limbo while they wait to see if the Middle East crisis will trigger a long-lasting inflation shock.

There was no change to US rates last night and the Bank of England may also sit on its hands today. There simply isn’t enough data to make an informed decision on whether to put up rates to deal with the likely aftershock of the Middle East crisis – namely, a new inflation spike.

The Bank of England has form in saying it is guided by data, and it’s too early to say if the $100 oil price observed in recent weeks has already fed into the economy and labour market. Latest figures show UK unemployment staying at a post-pandemic high of 5.2%, but the data period is only up to January which is before the Middle East conflict kicked off.

The risk of an inflation shock has escalated after oil hit $115 per barrel after strikes on energy infrastructure.

Financial markets were firmly in the red as investors reacted to the Middle East conflict intensifying, with stocks down across Asia and Europe.

Gold also fell, which suggests investors are once again liquidating assets that have previously served them well, or they are reacting to a further strengthening in the US dollar. Gold often declines when the US dollar appreciates as the metal becomes more expensive for buyers of other currencies.

Economically sensitive stocks were among the biggest fallers on the UK stock market, including banks and miners. An inflation spike threatens to cause economic damage and that clouds the earnings outlook for lenders and commodity producers.

That’s a worst-case scenario and it’s important to consider that a quick resolution to the conflict could lead to a small scratch rather than a deep cut for corporate earnings. What’s annoying investors is the ongoing uncertainty – it’s impossible to make a call on what will happen next, so markets are taking it one day at a time.

Unilever

Hot on the heels of demerger talk for Unilever’s food assets, there’s a new twist to the story. Reports suggests Unilever has held talks with Kraft Heinz to merge their food assets into a combined entity, creating a powerhouse for ketchup and mayonnaise.

Essentials in homes around the world, there is plenty of competition for these food items, yet Unilever and Kraft own the big brands. That makes the prospect of a merger more interesting.

While they’ve found life a bit harder in recent years, they stand to prosper in stronger economic conditions. Combining operations could achieve economies of scale for purchasing raw materials and potentially tasty operational savings.

Reports suggest talks are no longer live, but the idea of a combination has now been planted and that might prompt shareholders on both sides to push for more information on how a merger could work, and if it’s worth pursuing.

BP 

The recent surge in energy markets has swung the pendulum back in favour of BP, but the company isn’t resting on its laurels as it continues to execute on its disposal plan.

Higher oil and gas prices should improve the financial position of BP and potentially enable it to pay down debt at a faster rate. But selling off parts of the business, with the aim of also reducing costs, remains part of the picture too.

The price tag on the sale of its Gelsenkirchen refinery to European outfit Klesch is under wraps but regardless of this figure, the resulting boost to BP’s cost savings target is arguably more significant.

With the higher oil and gas price backdrop and progress on reshaping and streamlining the business, the stars are aligning for incoming CEO Meg O’Neill as she prepares to start next month.

Investors will be watching closely to see what O’Neill has up her sleeves to build on the progress which has immediately preceded her taking over the top job.

DFS 

DFS has continued to churn out a robust performance but that couldn’t cushion the impact on the share price from a decidedly uncertain outlook and a softening in demand.

The chain has done well at a time when competitors have been struggling but saw evidence of footfall in its stores slowing in the first weeks of 2026.

Blaming the weather doesn’t seem that convincing given most of its outlets are in locations people would drive to and speaks instead to what DFS acknowledges is a ‘delicately balanced’ picture on consumer confidence.

That confidence will have been shaken by the recent events in the Middle East. The impact on the housing market of a recent rise in mortgage rates could dilute demand as property purchases are closely aligned with people buying new furniture.

DFS’s reiteration of profit guidance looks heavily caveated as meeting profit expectations might depend on there being no material supply disruption from ‘current geopolitical events’. Some level of disruption seems likely at this point given the disruption already seen to global shipping.