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We’ve finally seen a relatively quiet week after what’s been a very intense first half of the year. Indeed, there’s been more drama on the football side of things than anything seen in financial markets. That said there have still been some notable moves (thankfully lower) in the oil price, and some volatility in tech stocks in the US and Asia, particularly South Korea where stocks and ETFs have seen some significant speculative moves in both directions.
Last weekend saw the US and Iran continue to trade low level retaliatory attacks despite the ceasefire and framework for a longer-term peace deal in place. The US launched strikes against Iran on Saturday, followed by Iran firing missiles and drones at Bahrain and Kuwait, which both host US bases. The renewed fighting began after a Singapore flagged cargo ship was hit by a projectile from Iran. President Trump said that “there may come a point when we are no longer able to be reasonable and will be forced to militarily complete the job that we very successfully started. If that happens, the Islamic Republic of Iran will no longer exist”. The elevated tensions appeared to fade fast, with oil once again trading below pre-war levels after US officials said both sides will “stand down for now”.
Federal Reserve (Fed) Chair Kevin Warsh said there would be “no changes” to the independence of the Fed as he pledged to take a strident approach to tackling inflation. Speaking at the European Central Bank’s policy forum, Warsh said the Fed would remain committed to its 2% inflation target and “delivery price stability” regardless of potential political pressure for lower rates. Warsh commented, “we’ve been an independent central bank for a very long time, we’re going to be an independent central bank at this moment and you’re going to see no changes on that.” Warsh reiterated that he was not comfortable with inflation running at over double the central bank’s target, saying “if there were people in households or the business sector or the financial markets who thought that this central bank was going to be comfortable with an inflation objective above 2 per cent, well, I guess they’d be disappointed.” Warsh gave a more comforting message on the inflation outlook but avoided forward guidance. Markets responded positively to his comment that “expectations of inflation over the first four weeks of this period have come down, inflation risks have come down.”
UK Prime Minister in waiting Andy Burnham gave a speech pledging to deliver “good growth in every postcode” of the UK. Burnham spoke from Manchester and confirmed plans to set up “No.10 North” based in the city, to counter the political focus on London, drive devolution and co-ordinate economic renewal across the country. Burnham promised a “10-year mission to raise living standards” setting an agenda that would run well beyond the three years left in this Parliamentary term. Burnham repeated the commitment to the fiscal rules set out by Keir Starmer’s government, promising he would maintain “sound public finances”. There remain no other candidates in the leadership contest; Burnham could therefore become party leader, and therefore Prime Minister, by mid-July.
By the numbers
US non-farm payrolls fell short of expectations in June, up 57,000. Consensus was for an increase of 113,000. The slowdown was particularly notable in leisure and hospitality. Unemployment fell from 4.3% to 4.2% as the participation rate fell. The figure for June represents the weakest number so far this year, aside from a weather-related decline in February, and comes on the back of three solid months.
Eurozone inflation eased to 2.8% year-on-year in the flash data for June, down from 3.2% in May and below expectations of 3.0%. The main driver was a decline in energy inflation, which was still up 8.7% year-on-year. Core inflation eased from 2.6% to 2.4%. Markets are now pricing 19 basis points of interest rate hikes from the European Central Bank this year.
Market movers
The oil price fell as low as $70.14 intraday this week, and the decline in Brent Crude to pre-conflict levels has been rapid, almost too rapid given ongoing uncertainty and the slow return of normal shipping levels. The oil market is likely in a state of disequilibrium, with a mini-glut of oil exiting the Gulf into a market where demand is relatively soft. For now, fully laden tankers are leaving the Gulf, and empty tankers are beginning to enter, to begin the process of emptying the full storage facilities. Once Gulf inventories ease, then Gulf production can ramp up. In addition, there is a surplus of Iranian oil sat in tankers in the Indian ocean looking for a home before the 60-day sanctions window closes – this is putting downwards pressure on physical pricing. The time taken for oil to reach its destination (oil tankers typically move at only about 14 miles per hour) means that many ships, laden or unladen are in the wrong place. A temporary jump in supply has helped push prices lower, and inventories continue to be drawn down secure in the knowledge that they can be replenished over time given the Strait of Hormuz is reopening. We may see some upside in oil as inventories and shipping normalise, with a political premium in the price for some time to come, particularly if this peace process does not run smoothly. Consensus estimates put the oil price somewhere between $70 and $85 a barrel this year – that figure was more like $60 at the start of 2026. There are also reasons to expect further supply to enter the market if Iranian oil remains unsanctioned longer term, and with the UAE and potentially Iraq leaving OPEC+, there is the potential for even more volumes to come to market. Oil prices may climb from what feel like relatively ‘low’ levels in the short term, but the long-term outlook is one of abundant supply and that should be supportive for global growth.
The investment lens
- Our asset allocation meeting this week discussed the increasingly constructive backdrop for risk assets, with the macroeconomic outlook continuing to move away from stagflation concerns and towards a more favourable “goldilocks” environment of steady growth alongside easing inflation pressures. Growth forecasts have been revised higher across several major regions, particularly the US, UK and Europe, while the sharp retracement in oil prices has helped alleviate inflation concerns.
- Encouragingly, both corporate and household balance sheets remain in relatively good shape, and recent economic data continue to point to resilient consumer spending and manufacturing activity. Strong earnings expectations are also supporting a positive outlook for growth through 2026 and 2027.
- A key focus of the discussion was whether the improved macroeconomic backdrop justified increasing the overall equity bias further. While conditions are favourable for equities, the case for taking the overweight further was not seen as compelling. Valuations were viewed as more reasonable than a year ago and earnings forecasts remain robust. However, behavioural indicators provided a note of caution, with investor positioning appearing increasingly crowded and equity fund inflows particularly strong.
