[MARKET ANALYSIS] Global equities hit on risk tone, energy and defence names benefiting while airlines majorly affected

• European bourses (STOXX 600 -1.3%) are entirely in the red due to instability in the Middle East. In brief, the US-Israeli war with Iran has entered its third day, with all sides conducting large-scale airstrikes. Airspaces have been closed, oil refineries and tankers have been hit and threats of further attacks continue (see "Iran Situation Report - Day 3" on the headline feed for more detailed analysis). The FTSE 100 (-0.8%) is being supported, albeit posting slight losses, helped by the major oil names (BP +3.0%, Shell +3.8%) as oil prices rise. The banking-heavy IBEX 35 (-2.5%) and FTSE MIB (-1.8%) have been hit the hardest on the prospect of increased war-risk claims.
• The Energy (+2.3%) sector is the only sector in the green, as WTI and Brent see gains of 7.3% and 6.1% respectively. Higher Nat Gas prices (Dutch TTF +24.5%) are also limiting losses in Utilities (-0.8%). Travel and Leisure (-4.5%) have been affected the most; higher oil prices and reduced travel hitting airlines (IAG -5.6%, Lufthansa -6.9%, Accor -9.7%).
• Defence names (Rheinmetall +2.8%, BAE +6.0%, Leonardo +3.5%) have greatly benefited from the tensions in the Middle East, similar to when the Ukraine war began. Citi strategists detailed that a shift heavily into defence can serve as an effective geopolitical hedge. Analysts at JPM also share this similar view.
• One other key space of the market that has benefited is shipping names such as Maersk (+4.5%), Kuehne+Nagel (+0.4%), due to higher freight rates.
• US equity futures (ES -1.2%, NQ -1.5%, RTY -1.5%) have followed the global risk tone but is currently rebounding off worst levels.

The ongoing conflict in the Middle East, particularly escalating tensions in the US-Israeli war with Iran, is weighing heavily on global equities, leading to substantial losses across European markets. While energy and defense stocks are benefitting from rising oil prices and increased militarization, airlines and leisure sectors are experiencing significant downturns due to escalating fuel costs and travel restrictions. This underscores a clear reallocation of investor sentiment amidst geopolitical instability, favoring sectors seen as safer during times of conflict.