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Market Perspectives: Postcard from Milan: What’s in store for H2?

Anthony Willis

Senior Economist, Multi-Asset Solutions team

Key Takeaways

Growth prospects for the second half of 2026 look more constructive as some of the geopolitical pressures that weighed on markets earlier in the year begin to ease.
Lower oil prices should help reduce inflationary pressure, although supply disruptions and residual geopolitical risk may keep energy markets volatile.
Central bank policy is likely to remain a key market driver, with interest-rate paths diverging across the US, UK, Europe and Japan.
Corporate earnings will be closely scrutinised for evidence that the AI investment cycle can continue to support revenue growth and profitability.
Political developments in the UK and US could add to market uncertainty, reinforcing the need for investors to stay selective and attentive to data releases.

Transcript

As investors look ahead to the second half of 2026, the market backdrop appears somewhat less fraught than it did during the first six months of the year. Geopolitical tensions have tested assumptions around global growth, inflation and the path for interest rates, with the disruption around the Strait of Hormuz and the crisis with Iran playing a central role in shaping investor sentiment. Encouragingly, some of the pressures that weighed on markets in the first half now appear to be easing.

In the near term, the clearest sign of improvement has been the fall in the oil price. Recent moves suggest a meaningful volume of oil is once again leaving the Persian Gulf and reaching global markets, which should help ease some of the pressure on energy prices. That is a constructive development for growth and inflation expectations, even if the process is unlikely to be entirely smooth. Production facilities across the Middle East will need time to ramp up, while shipping dislocations mean supply chains may take longer to normalise.

Against that backdrop, oil may settle in a range of around $70 to $80 per barrel, leaving some geopolitical risk premium embedded in prices. Investors should also expect periodic volatility as the US and Iran attempt to progress peace talks and work towards a nuclear agreement. Six days of negotiations is an ambitious timetable for such a complex issue, and headlines during that process could still move markets.

While geopolitics remains important, the bigger market driver in the second half may be monetary policy. In the US, the economy remains resilient and the Federal Reserve has adopted a more hawkish tone. As investors reassess whether the Fed may need to raise rates again – and how often – market pricing is likely to remain sensitive to incoming data and central bank communication.

The other key focus will be corporate earnings. As second-quarter reporting season begins, investors will be watching closely for evidence that the artificial intelligence investment cycle can continue to support profits. Capital expenditure by AI-related companies has been a major source of growth momentum, particularly in the US, and its influence is also being felt across supply chains in regions such as Southeast Asia.

The critical question is whether companies can monetise that spending and generate an attractive return on investment. Expectations around AI-related capital expenditure, revenue growth and profitability are now high, which means earnings results could become an important source of market volatility. Nonetheless, the scale of investment remains a meaningful growth stimulus, both for the US economy and for the global technology supply chain.

Political risk will also remain in focus. In the UK, markets will be watching the transition to a new prime minister and the extent to which the next government can set out a credible growth agenda while remaining within existing fiscal constraints. The reaction of gilt and currency markets will depend on how convincingly that balance is struck.

In the US, the midterm elections could also reshape the policy environment. Lower gasoline prices would be helpful for the Republicans, but current expectations suggest the Democrats may make gains. If they were to secure control of one or both houses of Congress, President Trump could face a more difficult backdrop for advancing policy initiatives, adding to an already polarised political landscape.

Overall, the growth outlook looks somewhat more constructive than it did earlier in the year, particularly if disruption around the Strait of Hormuz continues to fade. However, the inflation outlook remains less settled. Lower oil prices should help over time, but there is still inflationary pressure working through the system, and inflation remains above target in several major economies.

That means the interest-rate outlook is likely to remain differentiated across regions. In the US, markets are beginning to price the possibility of a Fed rate hike. In the UK, the hope is that the Bank of England can remain on hold, although that will depend on the inflation data. In Europe, another rate increase looks plausible, while Japan is likely to continue normalising policy gradually.

For professional investors, the implication is that the second half of 2026 may offer a somewhat firmer growth backdrop, but not a straightforward one. Geopolitical risks have not disappeared, inflation has not yet been fully contained, and central banks may not move in lockstep. At the same time, easing energy pressures and continued AI-related investment provide reasons for cautious optimism.

The balance of risks has improved compared with the first half of the year, but markets are still likely to be driven by data, policy signals and earnings delivery.

29 June 2026

2026年 June 29日

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Market Perspectives: Postcard from Milan: What’s in store for H2?

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Market Perspectives: Postcard from Milan: What’s in store for H2?

Market Perspectives: Postcard from Switzerland: Should markets be moving more?

Market Perspectives: The ceasefire and its consequences

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Market Perspectives: Postcard from Milan: What’s in store for H2?

Key Takeaways

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Market Perspectives: Postcard from Milan: What’s in store for H2?

Market Perspectives: Postcard from Switzerland: Should markets be moving more?

Market Perspectives: The ceasefire and its consequences

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