Developments in the Middle East were the focus for markets again last week. Press releases from the US administration indicated that productive conversations had occurred between all parties and an agreement to end the conflict could be approaching. This news improved investor sentiment and triggered a fall of almost 5% in the Brent Crude oil benchmark last Wednesday – welcome news for all investors given recent conflict-driven inflationary pressures. It is likely that any deal will involve both the reopening of the Strait of Hormuz and Tehran relinquishing any nuclear weapon capabilities developed via its nuclear programme. Though an agreement will not immediately extinguish the impacts of the war, an end to the conflict and opening of the Strait should go a long way to mitigating the impact.
A report released by the European Central Bank reiterated the ongoing risks to the global economy. Alongside geopolitical risks, the report highlighted the US administration’s shifting position in the global economy, as well as its changing trade policy, as other key risks testing the resilience of the financial system.
US Equity Market:
Goldman Sachs raised its end-of-year forecast for the S&P 500 stock market index last week to the 8,000 level, comfortably above the current trading level of around 7,500. The uplift added further fuel to the growing positive sentiment in markets as the investment bank cited robust AI-driven earnings as a key tailwind for the forecast, more than offsetting ongoing inflationary pressures and supply risks. This is in addition to UBS Global Wealth Management suggesting that the beneficiaries of AI are set to drive about half of the earnings growth for companies in the S&P 500 for 2026, even with weakened consumer spending and elevated costs. In keeping with this optimistic outlook, the index closed the week to Friday up 1.4%, while the NASDAQ index climbed 2.9%.
Micron, the US’ largest memory chipmaker, saw its share price jump more than 25% over last week to reach a valuation in excess of the $1 trillion mark. This followed UBS more than tripling its target price for Micron shares, from $535 to $1625. UBS attributed the upgrade to the business locking in long-term contracts that should partially fix its pricing and stabilise Micron’s historically volatile earnings profile. Before the upgrade, one Micron share traded at around 35 times the company’s current earnings per share – it finished the period at around 44.5 times.
UK Equity Market:
Political developments continued to be the focus in the UK. Leadership hopeful Andy Burnham pledged to introduce a land value tax amid reports that British property taxes hit a record high and now account for 3.7% of GDP. Moreover, a government assessment released last week concluded that reforms to the UK’s financial regulation could provide a £1.6 billion boost to the City of London over the next decade.
In macroeconomic data, KPMG reported that UK GDP growth could slow to 0.8% in 2026, following conflict-driven inflationary pressures and supply chain disruption. This figure is slightly lower than the IMF’s 1% growth figure forecasted last month. In employment data, the FT reported that over 1 million young Britons (age 16-24) are now out of work, education or training, the highest level in 12 years. Elsewhere, data released last week indicated that bank lending to UK businesses fell to the lowest level in 30 years, off the back of weak economic growth and tighter credit regulations for small- and medium-sized enterprises. Each of these data points reiterate the ongoing policy challenge facing both the Bank of England and the UK Prime Minister.
In UK equities, Pets at Home stock rose despite profits being down 28% year-on-year, with optimism driven by signs that the retail turnaround was working. The FTSE 100 index fell marginally over the week to Friday. Sterling now trades at around 1.34 against the US Dollar.
Inflation, Interest Rates and Bond Markets:
Eurozone nations have sharply increased their borrowing in foreign currencies in recent times, seeking to bring in a broader group of investors to a eurobond market that has become increasingly oversupplied. So far this year, sovereign issuers in the euro currency bloc have already raised $4.6 billion in debt denominated in currencies that are not the euro – mainly the US dollar and Swiss franc, but also the Australian dollar and China’s renminbi – putting them on track to exceed the $7.7 billion issued in 2025. While this is only a small portion of the total $1.6 trillion of debt issued by Eurozone governments in 2025, it demonstrates a growing effort by sovereign euro debt issuers to tap a wider market to fulfil their growing borrowing requirements.
As noted last week, a lower-than expected UK CPI print and political discourse from Labour leadership hopeful Andy Burnham triggered a rally in UK gilts. Recently, 10-year gilt yields had fallen almost 0.3% to 4.9%, a fall which marked the strongest performance for the tenor in almost two years. As a reminder, bond yields move inversely to prices.
What’s on the horizon
In line with recent weeks, the core focus for global investors will be developments in the Middle East and whether rumours of a peace deal formalise into an agreement.
This week marks the beginning of June and this will bring a number of key datapoints across the globe. In the US, the US Manufacturing Purchasing Manager’s Index (PMI) will be released early in the week. The PMI is a datapoint that helps understand if a sector is expanding, staying the same, or contracting which gives a key insight into the strength of activity in that particular sector and thus the economy. Other datapoint releases expected are the S&P Global Manufacturing PMIs, and a string of employment related data throughout the week. UK wise, the house price index, manufacturing PMI and construction PMI will be released. China will release its manufacturing, non-manufacturing and services PMIs, whilst the eurozone will be looking at the Flash Consumer Price Index (FCPI) data, a key inflation gauge for the European Central Bank.
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.