The Strait of Hormuz remained the centre of investor attention this week as the US administration announced last Monday that it would reimpose its blockade of Iranian ports and charge a 20% fee on ships transiting the waterway. Oil prices jumped and equity markets wobbled in response, before the fee proposal was later withdrawn amid suggestions it could be replaced by trade and investment deals with Gulf states. Continued US strikes on Iran later in the week kept traders on edge; Brent crude closed the period around the $84 level, having started around $75. Separately, Dubai-based logistics company DP World reportedly entered talks to construct a new port on the UAE’s Gulf of Oman coast, as part of a broader effort to reduce the region’s long-term reliance on the Hormuz chokepoint.
China’s economy grew 4.3% year-on-year in Q2, its slowest pace since records began, bar the pandemic-hit years of 2020 to 2022. The figure was below both forecasts and Beijing’s 4.5-5% target range, with economists pointing to weak consumer spending, a deepening property downturn and a sharp pullback in investment. In recent history, weakness in these areas of the economy have been largely offset by resilient export growth, intensifying China’s dependence on external demand. The softer data point has fuelled expectations of heavier fiscal stimulus in the second half of 2026, with details potentially following a meeting scheduled later in July.
US Equity Market:
US stocks had a volatile week where they fluctuated between renewed Hormuz-driven selling and investor relief following a softer-than-expected inflation figures. These offsetting moves left the S&P 500 index largely unchanged over the week to Friday, closing down 1.55%. US small cap stocks continued their rally that begun at the turn of the year, with the Russell 2000 index now around 20% up year-to-date. Analysts have attributed the rally to investor rotation out of concentrated mega cap technology positions and into a wider base of domestically focused companies.
In single names, SpaceX shares fell below the $135 price they were listed at in last month’s initial public offering for the first time last week. The fall marks a notable landmark in the decline that has wiped roughly a third from the stock’s peak valuation. Analysts have attributed the fall to investor profit-taking and a reassessment of valuations ahead of the company’s first results announcement as a public company. Elsewhere, IBM suffered its biggest single day decline in over a century last Tuesday, plunging around 25% after a warning related to changing consumer spending habits. These moves come alongside broader weakness in technology stocks driven by concerns for the path of future US interest rates and the profitability of AI-related investments.
By contrast, Wall Street’s biggest banks announced bumper Q2 results last week. JPMorgan, Goldman Sachs, Bank of America, Citigroup and Wells Fargo together reported a combined net income of almost $50 billion – up 39% year-on-year, as equity trading boomed. The SpaceX IPO and a wave of other merger activity also drove record investment banking fees.
UK Equity Market:
Andy Burnham moved one step closer to becoming British Prime Minister after he secured the support of 349 Labour MPs. With over 80% of votes, no other party candidate can now challenge him, leaving him set to be sworn in today.
The health of the economy will be high up his agenda when he begins his new role – figures released by the Office for National Statistics last week revealed that the UK economy grew by 0.1% in May in the face of persistent inflation and the surge in energy prices. This monthly rise offsets the 0.1% contraction over April but is further evidence of the lingering UK growth problem that Burnham’s government will have to face over the coming months and years.
The FTSE 100 index closed the week to Friday up 0.98% as the market reacted to renewed strikes in the Middle East and the broader pull back in memory chip stocks rippling through last week. Sterling trades at around 1.35 against the US Dollar.
Inflation, Interest Rates and Bond Markets:
The US inflation figure for June came in at 3.5%, below the 3.8% predicted by economists. The lower consumer price index (“CPI”) index provided relief for investors and policymakers after three consecutive monthly increases that were mostly driven by inflation pressures in the Middle East. This fall is reflective of the cooling down of geopolitical tensions towards the end of June. Encouragingly, this round of inflation figures also revealed a 0.3% month-on-month fall in core inflation, the measure that strips out volatile food and energy prices, indicating that broader price pressures may also be easing. However, while the figures were welcomed by investors and Federal Reserve Chair Kevin Warsh, the renewed escalation in the Middle East means the inflation outlook remains uncertain.
Renewed tensions in the Middle East also pushed UK longer-dated gilt yields marginally higher over the last week, taking them back towards levels last seen in early May during the height of the conflict.
What’s on the horizon
Events in the Middle East are likely to remain the main focus for investors this week, as markets watch for the next steps in the conflict. UK politics will also be in focus as the next chapter begins with Andy Burnham due to become UK Prime Minister today. Investors will be watching closely for signals regarding the near-term direction of his leadership.
A busy week of macroeconomic data is also ahead. In the US, July purchasing manager index, or PMI, data will provide an update on the health of the world’s largest economy. In the UK, investors will see the June CPI data, preliminary July PMI data and further employment figures. In the eurozone, the European Central Bank will announce its latest interest rate decision, alongside the release of July PMI data. Japan will also publish its latest CPI and services PMI figures.
Second quarter earnings releases continue this week, with Alphabet (Google’s parent company), Tesla and Intel all reporting. Investors will be watching closely for any insights into company profitability given recent weakness in the technology sector.
This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.
Past performance is not a guide to future performance.
The value of your investments can go down as well as up and you may get back less than you originally invested.
Source of financial market data: MorningstarDirect.