Global markets were left processing the unravelling of the fragile ceasefire between the US and Iran last week, after Iran struck commercial vessels in the Strait of Hormuz which prompted the US to carry out two days of consecutive strikes on coastal and military targets. Iran then responded with strikes on US bases in Kuwait, Bahrain and Qatar.
These renewed hostilities pushed Brent crude to a three-week high above $80 last Wednesday, as investors were again asked to weigh up the risks of a wider war. Adding to the pressure on fuel markets was Russia, when it announced a temporary ban on diesel exports until the end of July last Wednesday, following sustained Ukrainian drone strikes triggering domestic shortages. A partial offset to this was offered by OPEC+, which groups the Organisation of Petroleum Exporting Countries and some other allied oil producers, with its announcement of plans to raise output by 188,000 barrels per day from August.
Elsewhere, NATO leaders wrapped up a two-day summit in Ankara, Turkey, by pledging €70 billion of military support for Ukraine this year. It was also confirmed that the US would license Kyiv to manufacture its own Patriot missile interceptor systems, with the US president striking an optimistic tone on the prospect of a wider peace deal with Russia. Meanwhile, the International Monetary Fund added a note of caution midweek, warning that conflict-driven energy price spikes had pushed its global inflation forecasts up to 4.7%, from 4.1% in 2025, yet trimmed its global growth forecast to 3.0%, down from 3.5%.
US Equity Market:
US equities gave back some recent gains midweek, with declaration of the ending US-Iran ceasefire initially sending the S&P 500 down, following rising oil prices and revived inflation concerns. The sell-off was tempered somewhat by a partial rebound in chipmakers, however, and the index finished the period to Friday up 1.26%. In private credit, big institutional investors continue to commit billions of dollars to the asset class, with North American direct lending vehicles in particular receiving $16 billion from institutional clients over the second quarter, even as smaller retail investors show signs of pulling back.
On the technology front, Meta was reported to be testing “super sensing” AI glasses capable of continuously capturing audio and video, allowing wearers to later recall what they had seen or heard while wearing them. The development drew scrutiny from privacy campaigners given the prototype would supposedly not trigger the usual recording indicator light on the glasses. This comes ahead of a busy few weeks for the sector, with Meta and its mega-cap peers due to report Q2 earnings, and investors keen to see evidence that the heavy AI infrastructure spending is beginning to translate into revenue growth.
UK Equity Market:
Political developments remained dominant in UK news, as the expected transfer of power to Andy Burnham on July 20th creeps ever closer. Burnham ruled out splitting the treasury into a separate economic ministry focussed on growth last week, and also floated his plan to cut business rates for pubs and the high street by introducing a warehouse tax, which was met by concern from some retailers. Elsewhere, Reform UK’s leader Nigel Farage stepped down as an MP so he could stand for re-election, in a political move, following a funding scandal.
The Bank of England announced plans to ease a key capital requirement for UK banks this week in a bid to boost lending and support for financial markets in a crisis, and Citi became the first bank in a decade to gain membership to the London physical gold market, which gives it the powers to facilitate transactions of gold.
In the markets, UK broadband provider Airband announced it is seeking a buyer following heavy losses, having already cut its workforce by a quarter since 2024, while the UK’s biggest supermarket, Tesco, is exploring a sale of its European business. Elsewhere, EasyJet reached an outline agreement with US investment firm, Apollo, on a £5.7 billion takeover, which sent its shares up 20% last week. These all come in the same week as reports that UK takeover bids in 2026 have outstripped new listings on the London Stock Exchange by 27 to 1, with bids of £60 billion for already-listed companies compared to only £2.2 billion worth of new entrants. The FTSE 100 closed the period to Friday down 1.6%, mainly driven by the re-escalation in the Middle East, and AstraZeneca’s shares falling 9%, following the news that its nerve disease drug, Wainua, had failed to meet its targets in a late-stage trial.
Inflation, Interest Rates and Bond Markets:
UK 10-year gilt yields surged to a four-week high at 4.96% midweek before stabilising, primarily driven by the breaking of the US-Iran ceasefire. Escalation in the Middle East led to rises in global crude oil prices, intensifying fears of stickier inflation in the UK. The 2-year gilt rose to 4.35% last Wednesday before settling down thereafter in response. Traders are now fully pricing in a 25-basis point Bank of England rate increase before the end of the year.
In the US, the story was quite similar – the 10-year treasury yield shot up to a 4-week high of 4.57% and the 2-year treasury went to 4.20% last Wednesday as markets reacted to the expectation of rising consumer prices. The Federal Reserve minutes, also released last week, revealed persistent internal concerns over rising inflation risks, and that new Chair Kevin Warsh’s aim remains bringing inflation down to the 2% target, despite near-term expectations easing slightly. They also revealed that multiple Fed officials discussed raising interest rates at the last meeting, before ultimately going with a unanimous vote to hold steady in June.
What’s on the horizon
Developments in the Middle East will remain at the forefront of investors’ thinking following the breaking of the ceasefire. Eyes will also be on Fed Chair Kevin Warsh, who will appear before the Senate Banking Committee today to give his inaugural monetary policy address.
Data wise, the US will be reporting its consumer price index (“CPI”) and retail sales for June, which are key gauges of inflation and consumer spending, and also its June manufacturing index and industrial production figures. The UK will release May GDP figures and manufacturing production. Elsewhere, China will release Q2 GDP, alongside its trade balance, industrial production and unemployment for June, and the Bank of Canada will announce its interest rate decision on Wednesday.
Some potential market movers will release Q2 earnings this week, with banking giant JP Morgan amongst key reports in the 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.
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Source of financial market data: MorningstarDirect.