Global Investment Outlook: Markets Navigate a New Macro Regime

Interest rate

		Anticipation
US	Federal Reserve Chair Kevin Warsh reinforced the central bank's higher-for-longer policy stance by reiterating that inflation remains above target and that the Federal Reserve is committed to restoring price stability. Although inflation risks have eased in recent weeks, Warsh provided no forward guidance on a potential July rate decision, signalling that policymakers are unwilling to pre-commit to a policy path. Instead, future interest rate decisions will continue to depend on incoming economic data, reinforcing expectations that the Federal Reserve will maintain a cautious approach until inflation shows more convincing signs of returning to its 2% objective.	For financial markets, this supports the US dollar, maintains relatively attractive Treasury yields and encourages investors to favour high-quality fixed income, financial stocks and companies with resilient earnings, while limiting near-term upside for interest rate-sensitive assets such as gold and speculative growth stocks. For long-term investors, however, the current policy stance is unlikely to alter structural investment themes, including artificial intelligence, infrastructure, energy security and climate adaptation, with market corrections potentially presenting opportunities to accumulate high-quality assets. Higher borrowing costs are also expected to encourage businesses to delay expansion plans, prioritise operational efficiency and focus investment on productivity-enhancing technologies such as AI and automation. Meanwhile, consumers are likely to remain cautious, with elevated mortgage and loan costs encouraging greater savings, reduced discretionary spending and increased demand for value-oriented goods and services. Overall, while restrictive monetary policy may weigh on economic activity in the short term, maintaining price stability should help establish a more sustainable foundation for long-term economic growth and financial market stability.
UK	Recent comments from Bank of England Monetary Policy Committee member Catherine Mann suggest that UK interest rates may need to remain restrictive for longer despite markets scaling back expectations of further policy tightening. Although the MPC voted 7–2 to keep the Bank Rate unchanged at 3.75% in June, Mann continued to highlight upside risks to inflation, indicating that underlying price pressures remain a concern. Her remarks reinforce the Bank of England's cautious and data-dependent approach, suggesting that policymakers are unlikely to consider rate cuts until there is stronger evidence that inflation is sustainably returning to target.	For businesses, a prolonged period of elevated borrowing costs may encourage firms to delay investment, prioritise cost efficiency and productivity improvements. Consumers are also likely to remain cautious as higher mortgage and loan repayments continue to weigh on discretionary spending, while savers may continue to benefit from relatively attractive deposit rates. For investors, the prospect of higher-for-longer interest rates supports income-generating assets and financial institutions, although sectors that rely heavily on consumer demand or debt financing may continue to face headwinds.
EU	The European Central Bank appears increasingly comfortable with its current policy position following June's 25-basis-point rate increase. Governing Council member Emmanuel Moulin said the ECB is in a “good position” after the latest rate hike, as weaker oil prices have helped ease inflationary pressures across the euro area. This supports the view that the ECB may not need to respond more aggressively in the near term, particularly as inflation is expected to gradually return towards the 2% target over the medium term. However, the central bank is unlikely to turn dovish quickly, as its June projections still show headline inflation averaging 3.0% in 2026 and 2.3% in 2027, with core inflation remaining elevated at 2.5% in both years. As a result, the ECB is likely to maintain a cautious, data-dependent approach, balancing easing energy-driven inflation against weak economic growth and persistent underlying price pressures.	For investors, a more gradual policy outlook may support European government bonds and interest rate-sensitive sectors if borrowing costs stabilise, although weaker economic growth is likely to favour high-quality companies with resilient earnings over more cyclical businesses. Lower financing costs over time could also improve the outlook for sectors such as real estate, utilities and infrastructure, while banks may experience some moderation in net interest margins if expectations for additional rate hikes continue to fade. For businesses, greater clarity over the interest rate outlook may improve investment confidence and reduce financing uncertainty, particularly for capital-intensive industries. However, subdued economic growth and weak manufacturing activity suggest that firms are likely to remain cautious regarding expansion plans until demand shows more convincing signs of recovery. Meanwhile, consumers could gradually benefit from easing inflation and more stable borrowing costs, supporting household purchasing power and consumer confidence, although elevated living costs and slower wage growth are likely to keep discretionary spending relatively subdued in the near term.

Inflation

		Anticipation
US	Federal Reserve Chair Kevin Warsh noted that both inflation expectations and inflation risks have eased in recent weeks, reflecting improving price dynamics following the decline in energy prices. Nevertheless, he reaffirmed the Federal Reserve's commitment to restoring inflation to its 2% target and emphasised that future monetary policy decisions will remain data dependent. While the moderation in inflation risks may reduce the urgency for additional rate hikes, policymakers are likely to maintain a cautious stance until there is stronger evidence that inflation is sustainably returning to target.	For investors, this reinforces expectations that interest rates could remain elevated in the near term, supporting the US dollar and fixed-income markets while encouraging a selective approach to equity investing. For businesses, greater confidence that inflation risks are easing may improve planning and investment decisions, although elevated borrowing costs are likely to continue weighing on capital expenditure. Meanwhile, consumers could gradually benefit from moderating inflation through improved purchasing power, but higher interest rates are expected to keep mortgage and consumer borrowing costs relatively high, encouraging continued caution in discretionary spending.
UK	Recent UK data suggest that inflationary pressures are gradually easing, although underlying price dynamics remain resilient. According to the Bank of England's Decision Maker Panel, businesses expect consumer price inflation to average 3.3% over the next 12 months, down from 3.7% in May, indicating growing confidence that inflation will continue to moderate. However, firms still anticipate increasing their own prices by around 4% over the coming year, highlighting that cost pressures remain above levels consistent with the Bank of England's 2% inflation target. Meanwhile, annual UK house price inflation accelerated to 2.2% in June from 1.7% in May, supported by easing energy prices and expectations that interest rates may begin to stabilise.	For investors, these developments suggest that the Bank of England may be approaching the end of its tightening cycle, providing a more supportive backdrop for UK equities, property-related sectors and fixed income, although persistent pricing intentions among businesses imply that policymakers are unlikely to ease monetary policy prematurely. For businesses, improving inflation expectations may support investment planning and confidence, while consumers could gradually benefit from stabilising mortgage expectations and improving real purchasing power as inflation continues to moderate.
EU	European Central Bank President Christine Lagarde stated that risks to both inflation and economic growth have become more broadly balanced following the recent decline in oil prices, suggesting that easing energy costs are reducing upside inflationary pressures while supporting the region's economic outlook. Her comments reinforce expectations that the ECB is likely to adopt a cautious and data-dependent approach to future monetary policy, rather than pursuing further aggressive interest rate increases.	For investors, a more balanced policy outlook could support European government bonds and interest rate-sensitive sectors such as real estate, utilities and infrastructure, while improving sentiment towards high-quality equities as financing conditions gradually stabilise. For businesses, greater clarity over the interest rate outlook may encourage investment planning and capital expenditure by reducing financing uncertainty, although weak economic growth is likely to keep expansion plans relatively cautious. Meanwhile, consumers could benefit from easing inflation and more stable borrowing costs, which should gradually improve household purchasing power and support consumer confidence, although discretionary spending may remain constrained until broader economic activity strengthens.

Equity Market

US: US equities ended June on a strong footing, with the S&P 500 and Nasdaq recording their best quarterly gains since 2020 as investors remained optimistic about economic resilience, earnings growth and the continued AI investment cycle despite geopolitical tensions in the Middle East. The Supreme Court's decision to unwind President Trump's sweeping tariffs also improved sentiment, as lower trade costs could provide an earnings tailwind for companies previously exposed to tariff-related margin pressure. However, market leadership became more uneven by Thursday as volatility returned to the technology sector. The S&P 500 finished broadly flat and the Nasdaq 100 fell 0.8%, with semiconductor stocks declining for a second consecutive session as investors questioned whether AI-related valuations had moved too far ahead of fundamentals. Micron, Applied Materials and AMD posted sharp losses, while Tesla also fell despite stronger delivery figures. In contrast, the Dow Jones surged 595 points to a fresh record high, supported by strength in more traditional sectors as investors rotated away from richly valued technology names. A softer-than-expected June jobs report further eased concerns over an imminent Federal Reserve rate hike, helping support broader risk appetite. Overall, the week highlighted a market that remains constructive on growth and earnings, but increasingly selective, with investors taking profits in AI-linked stocks while rotating into high-quality cyclicals, defensives and companies that may benefit from lower tariff costs.

UK: The FTSE 100 extended its recent rally, rising 0.3% on Friday to its highest level since early March and finishing the week 1.6% higher, marking a second consecutive week of gains. Investor sentiment continued to improve as expectations of a less aggressive Bank of England policy outlook, supported by moderating inflation and easing energy prices, encouraged demand for defensive and income-generating sectors. Utility companies outperformed, with SSE, National Grid, Centrica and Severn Trent all posting gains as investors sought stable dividend-paying stocks in a higher-for-longer interest rate environment. Mining shares also provided support, with Fresnillo and Anglo American advancing as precious metal prices stabilised and expectations of stronger global industrial demand improved. Trading activity remained subdued due to the US Independence Day holiday, limiting broader market participation. Overall, the FTSE 100 continued to outperform many of its international peers, supported by its defensive sector composition, attractive dividend yields and internationally diversified earnings, while easing inflation expectations strengthened confidence that UK monetary policy may be approaching a more stable phase.

EU: European equities ended the week on a strong note, with the Euro STOXX 50 rising 0.9% and the STOXX Europe 600 gaining 0.7% to a fresh record high, marking a fourth consecutive week of gains. Investor sentiment was supported by a more favourable macroeconomic backdrop as softer US labour market data and moderating Eurozone inflation reinforced expectations that major central banks, particularly the Federal Reserve, are unlikely to tighten monetary policy further in the near term. Technology stocks rebounded after a volatile week, with investors selectively returning to AI-related companies as concerns over stretched semiconductor valuations eased. ASML climbed 3.7%, Infineon Technologies gained 1.2%, while companies exposed to data centre infrastructure, including Siemens and Schneider Electric, also advanced. Utilities outperformed as investors continued to favour defensive sectors, while banks such as BBVA and Deutsche Bank benefited from lower short-term sovereign bond yields, which improved expectations for financing conditions despite long-end yields remaining elevated. Overall, the week's performance reflected growing confidence that easing inflation and a less restrictive monetary policy outlook could provide continued support for European equities, although investors remain selective given the region's relatively subdued economic growth.

Fixed Income Market

• US: The US Treasury market reflected a more cautious outlook this week as the 10-year Treasury yield declined to around 4.46% following weaker-than-expected labour market data, which prompted investors to scale back expectations of further Federal Reserve rate hikes. June non-farm payrolls increased by only 57,000, while downward revisions to previous months and a decline in labour force participation pointed to a gradual cooling in employment conditions. At the same time, Federal Reserve Chair Kevin Warsh acknowledged that inflation expectations have eased in recent weeks but reiterated the central bank's commitment to restoring inflation to its 2% target, reinforcing a data-dependent approach rather than signalling an imminent policy pivot. Despite the fall in long-term yields, the continued flattening of the US yield curve suggests that financial conditions remain restrictive, reflecting expectations that policy rates will stay elevated for longer rather than signalling a benign decline in inflation and growth. For investors, this environment continues to favour high-quality fixed income and defensive sectors, while maintaining pressure on highly leveraged companies and interest rate-sensitive growth stocks. Businesses may remain cautious towards borrowing and capital expenditure as financing costs stay elevated, while consumers are likely to face persistently high mortgage and lending rates despite gradually easing inflation. Overall, the bond market suggests that investors are becoming less concerned about additional near-term rate hikes but remain mindful that restrictive monetary policy is likely to persist until inflation is sustainably under control.

• UK: The UK 10-year gilt yield hovered just below 4.8%, reflecting a mixed macroeconomic backdrop as investors balanced softer economic data against expectations that interest rates will remain elevated for longer. Although weaker-than-expected US labour market data and the Bank of England's cautious policy stance encouraged markets to scale back expectations for further rate hikes in both the UK and the US, gilt yields still rose 6 basis points over the week as investors unwound positions following the US-Iran ceasefire and responded to higher long-term global bond yields, particularly in Japan. Bank of England Governor Andrew Bailey reiterated that while the UK economy is slowing and inflation is expected to gradually return to the 2% target, policymakers are in no rush to ease monetary policy, reinforcing expectations that borrowing costs are likely to remain restrictive for some time. For investors, higher gilt yields continue to improve the attractiveness of UK fixed income while supporting financial institutions that benefit from elevated interest rates, although sectors reliant on cheaper financing, such as real estate and housebuilders, may remain under pressure. Businesses are likely to remain cautious regarding investment and borrowing decisions as financing costs stay elevated, while households may continue to face higher mortgage repayments despite easing inflation. Overall, the gilt market suggests that investors are becoming less concerned about additional near-term rate hikes but continue to expect a prolonged period of restrictive monetary policy until inflation is firmly under control.

• EU: Germany's 10-year Bund yield rose to approximately 2.93%, recording its first weekly increase since early June as investors adjusted positions following the sharp rally in sovereign bonds after the US-Iran ceasefire and responded to rising long-term government bond yields globally, particularly in Japan. Despite the increase, Bund yields remain well below the multi-year highs reached in May, reflecting improving inflation dynamics and expectations of a more gradual European Central Bank policy path. June inflation data came in softer than expected, with headline inflation easing to 2.8% and core inflation moderating to 2.4%, while ECB President Christine Lagarde stated that risks to inflation and economic growth have become more balanced following the recent decline in energy prices. Together with weaker-than-expected US labour market data, these developments have encouraged investors to scale back expectations of further aggressive monetary tightening, although money markets continue to price in the possibility of one additional ECB rate increase this year. For investors, the stabilisation of Bund yields provides a more supportive backdrop for European government bonds and interest rate-sensitive sectors, while improving financing conditions could gradually benefit infrastructure, utilities and real estate companies. However, businesses are likely to remain cautious given the region's weak economic growth and subdued manufacturing activity, while households may only experience a gradual improvement in borrowing conditions as the ECB continues to prioritise bringing inflation sustainably back to its 2% target.

Commodities

• Oil prices fell to a four-month low this week as easing geopolitical tensions in the Middle East reduced concerns over supply disruptions and improved confidence in the security of shipping routes through the Strait of Hormuz. Expectations that the US and Iran could reach a more durable peace agreement have prompted investors to reassess geopolitical risk premiums, while improving tanker traffic has further supported the outlook for global energy supplies. At the same time, the United States continued to strengthen its position as a key global energy supplier, reporting record crude oil production and exports in April as international buyers increasingly turned to US barrels during earlier disruptions to Persian Gulf shipments. Looking ahead, a sustained normalisation of shipping through the Strait of Hormuz could reduce freight costs and ease pricing pressures across the global container shipping industry, although it may also place downward pressure on shipping companies' earnings as transport rates moderate. For investors, lower oil prices could support sectors that benefit from declining energy costs, including airlines, transportation, manufacturing and consumer discretionary industries, while reducing inflationary pressures and strengthening the outlook for equities and fixed income. Conversely, energy producers may continue to face earnings headwinds if crude prices remain under pressure. Overall, while geopolitical risks remain an important source of market volatility, improving energy supply conditions suggest that inflationary pressures from oil are likely to continue easing, allowing investors to shift greater attention towards broader economic fundamentals and corporate earnings.

• Gold rose to around $4,170 per ounce on Friday, reaching its highest level since 23 June and recording a 2% weekly gain after four consecutive weeks of declines. The rebound was driven primarily by weaker-than-expected US labour market data, with nonfarm payrolls increasing by only 57,000 in June, well below the 110,000 forecast. The softer jobs report led traders to scale back expectations of a near-term Federal Reserve rate hike, with the probability of a September increase falling to around 50% from 66% before the release. This supported gold by lowering the opportunity cost of holding non-yielding assets, while a weaker US dollar further strengthened demand for the precious metal. Central bank buying also remained an important source of support, with global monetary authorities adding a net 41 metric tons of gold to reserves in May, according to the World Gold Council. However, physical demand was mixed, with Indian buying softening as higher prices weighed on affordability, while Chinese demand showed modest improvement.

• Brent crude traded around $72 per barrel on Friday, remaining close to levels seen before the Middle East conflict as improving geopolitical conditions continued to support the recovery in global oil supplies. Progress in US-Iran negotiations and the continued normalisation of commercial shipping through the Strait of Hormuz have reduced concerns over prolonged supply disruptions, with crude exports from Saudi Arabia recovering to around 90% of their pre-war levels alongside a strong rebound in shipments from the United Arab Emirates. Iraq has also shown early signs of export recovery, while a significant volume of Iranian crude remains in floating storage, suggesting additional supply could return to the market if sanctions are eased or a lasting agreement is reached. For investors, the easing geopolitical risk premium is helping to moderate inflation expectations and reducing the likelihood of further aggressive monetary tightening by major central banks. Lower energy prices could provide a tailwind for sectors such as airlines, transportation, manufacturing and consumer discretionary, while easing input costs for businesses and supporting household purchasing power. However, sustained weakness in crude prices may weigh on the earnings outlook for oil producers and energy-related equities. Overall, although geopolitical developments remain a key source of volatility, improving supply conditions indicate that energy markets are gradually shifting from a supply-driven risk environment towards one increasingly influenced by global demand fundamentals.

FX

• USD: The US Dollar Index (DXY) remained below 101 on Friday and was on track for its first weekly decline in three weeks after weaker-than-expected US labour market data prompted investors to scale back expectations for further Federal Reserve tightening. June nonfarm payrolls increased by only 57,000, well below market expectations, while private-sector employment also disappointed, reinforcing signs of a gradually cooling labour market. As a result, markets reduced the probability of a September rate hike to around 50%, down from 67% before the employment report. Although Federal Reserve Chair Kevin Warsh reiterated the central bank's commitment to restoring inflation to its 2% target, he acknowledged that inflation expectations have moderated, supporting expectations that policymakers may adopt a more patient approach if inflation continues to ease. For investors, a softer US dollar could improve sentiment towards commodities, emerging markets and multinational companies with significant overseas revenues, while reducing pressure on non-yielding assets such as gold. For businesses, a weaker dollar may enhance the competitiveness of US exports but increase the cost of imported goods and raw materials. Meanwhile, consumers could benefit from a reduced likelihood of further interest rate increases, although imported products may become more expensive if the dollar continues to weaken. Overall, the recent decline in the dollar reflects growing confidence that the Federal Reserve may be approaching the end of its tightening cycle, even as policymakers remain committed to maintaining price stability.

  
  

• GBP: The British pound strengthened to around $1.335, its highest level in two weeks, posting a 1% weekly gain as weaker-than-expected US labour market data weighed on the US dollar and prompted investors to reduce expectations for further Federal Reserve rate hikes. However, sterling's upside remained constrained by the Bank of England's cautious policy outlook. Governor Andrew Bailey reiterated that the UK economy is slowing and emphasised that policymakers would not overreact to recent increases in oil prices, while maintaining that inflation is expected to gradually return to the 2% target, albeit later than previously anticipated. At the same time, Bailey ruled out near-term interest rate cuts, reinforcing expectations that UK monetary policy will remain restrictive for longer. Political developments also remained in focus, with markets monitoring the potential appointment of Ed Miliband as Chancellor and the expected transition to an Andy Burnham government later this month, although investors have so far reacted calmly following commitments to maintain fiscal discipline. For investors, a stronger pound may reduce imported inflation and support domestic purchasing power, although it could weigh modestly on the overseas earnings of internationally focused FTSE 100 companies. For businesses, sterling appreciation may help lower the cost of imported inputs but could reduce the competitiveness of UK exports if sustained. Meanwhile, consumers stand to benefit from improved purchasing power and potentially lower import prices, although elevated interest rates are likely to continue weighing on household borrowing and discretionary spending.

  
  

• EUR: The euro ended the week just above $1.14, gaining approximately 0.5% as weaker-than-expected US labour market data weighed on the US dollar and prompted investors to reduce expectations for further Federal Reserve rate hikes. However, the euro's appreciation remained limited by a more dovish outlook from the European Central Bank. Softer-than-expected June inflation data, with headline inflation easing to 2.8% and core inflation slowing to 2.4%, together with comments from ECB President Christine Lagarde that risks to inflation and economic growth have become more balanced, reinforced expectations that the ECB may adopt a more gradual approach to further policy tightening. Markets have consequently reduced expectations for a third interest rate increase this year, although one additional hike remains the central expectation. For investors, a firmer euro may improve confidence in Eurozone assets by reflecting easing inflationary pressures and a more stable monetary policy outlook, while potentially weighing on the overseas earnings of export-oriented European companies. For businesses, a stronger euro could help reduce the cost of imported energy and raw materials, supporting corporate margins as inflation moderates. Meanwhile, consumers may benefit from improved purchasing power and lower imported inflation, although relatively restrictive interest rates are likely to continue weighing on household borrowing and discretionary spending until inflation returns sustainably to the ECB's 2% target.

• YEN: The Japanese yen strengthened to above 161 per US dollar, extending its recent gains as renewed intervention concerns and a weaker US dollar improved sentiment towards the currency. Finance Minister Satsuki Katayama reiterated that Japanese authorities remain prepared to intervene in the foreign exchange market if necessary, while confirming continued coordination with US officials on currency policy. Market speculation intensified after reports suggested Japan may no longer signal intervention plans in advance, increasing uncertainty for investors holding bearish positions against the yen and triggering a sharp unwinding of speculative trades. At the same time, weaker-than-expected US labour market data reduced expectations for further Federal Reserve rate hikes, placing additional downward pressure on the US dollar and supporting the yen. For investors, a stronger yen may reduce the appeal of popular carry trades while increasing currency volatility across global markets. Japanese equities, particularly export-oriented companies, could face headwinds if the yen continues to appreciate, as overseas earnings become less valuable when translated back into domestic currency. Conversely, businesses that rely heavily on imported energy and raw materials may benefit from lower import costs, helping to ease inflationary pressures. For Japanese consumers, a stronger currency improves purchasing power by reducing the cost of imported goods and energy, although policymakers are likely to remain vigilant to ensure that excessive currency volatility does not undermine the country's export competitiveness and broader economic recovery.

Comments

Global financial markets entered a new phase this week as investor attention shifted from geopolitical uncertainty towards macroeconomic fundamentals and long-term structural investment themes. While conflicts in the Middle East and Ukraine remain unresolved, easing tensions between the US and Iran and the continued recovery of shipping through the Strait of Hormuz have significantly reduced concerns over immediate energy supply disruptions. As a result, oil prices retreated towards pre-conflict levels, inflation expectations moderated, and investors increasingly focused on economic data, central bank policy and corporate earnings rather than geopolitical headlines. Nevertheless, renewed Russian attacks on Ukraine and ongoing discussions regarding potential transit fees for vessels passing through the Strait of Hormuz serve as reminders that geopolitical risks remain an important source of market volatility and could quickly disrupt global trade and commodity markets if tensions escalate.

The improvement in energy supply conditions has also strengthened expectations that the recent energy-driven inflation shock is gradually fading. Recovering crude exports from Saudi Arabia, the United Arab Emirates and Iraq, together with improving tanker traffic through the Strait of Hormuz, have prompted expectations that the global oil market could return to oversupply over the coming year. Lower energy prices should continue easing inflationary pressures, reducing input costs for businesses and improving household purchasing power, particularly across energy-importing economies. However, the recent rebound in global shipping activity also suggests that investors are beginning to transition from pricing geopolitical risk towards assessing broader economic fundamentals, corporate earnings and monetary policy. Energy markets are therefore likely to remain volatile in the short term, although the medium-term outlook has become increasingly constructive for inflation.

At the same time, financial markets are entering a period where inflation is becoming more structural rather than purely energy-driven. The International Monetary Fund recently highlighted that artificial intelligence may contribute to inflation through a wealth effect, as rising equity valuations increase household wealth and stimulate consumer spending on housing, travel and discretionary goods. Unlike the recent energy shock, this represents demand-driven inflation, which could complicate the policy outlook for central banks even as commodity prices continue to moderate. Although investors have become more selective following periods of profit-taking across some technology companies, the broader AI investment cycle remains firmly intact, supported by continued investment in semiconductors, electricity infrastructure, cloud computing and digital transformation. Rather than signalling the end of the AI trade, recent market rotations suggest investors are becoming increasingly disciplined in distinguishing between companies with strong earnings fundamentals and those supported primarily by elevated valuations.

Looking further ahead, climate-related risks may represent the next major structural challenge for financial markets. Although the FAO Food Price Index declined for a second consecutive month, easing short-term concerns over global food inflation, growing expectations of a potential super El Niño continue to pose significant risks to agricultural production and global food security. Adverse weather conditions could reduce crop yields, tighten global food supplies and generate persistent food inflation over the coming years. Similar to previous supply shocks following the COVID-19 pandemic and the Russia-Ukraine conflict, governments may increasingly prioritise strategic food reserves, supply chain diversification and investment in climate-resilient agriculture. These developments strengthen the long-term investment case for agricultural commodities, fertiliser producers, irrigation systems, water infrastructure and climate adaptation technologies, while increasing cost pressures for food manufacturers, restaurants and food-importing economies.

Overall, this week's market performance suggests that investors are becoming more optimistic about the macroeconomic outlook as easing energy prices, softer inflation and a less aggressive interest rate outlook provide support for global equities, government bonds and precious metals. However, rather than signalling the end of inflationary pressures, markets appear to be transitioning into a new regime characterised by multiple structural drivers of inflation, including artificial intelligence, climate-related supply disruptions and persistent geopolitical uncertainty. For investors, this reinforces the importance of maintaining diversified portfolios while balancing cyclical opportunities created by improving macroeconomic conditions with long-term structural investment themes such as artificial intelligence, electricity infrastructure, defence, agriculture and climate adaptation. At the same time, high-quality fixed income, selective commodity exposure and strategic allocations to gold continue to provide valuable portfolio diversification as investors navigate an increasingly complex global investment environment.

US Market Summary

The narrative driving US markets is beginning to change. Rather than focusing on what the Federal Reserve will do next, investors are increasingly focused on what the economic data reveal. As the Fed steps back from providing explicit forward guidance, inflation, employment and consumer spending data are becoming the primary catalysts for market movements. Although the US economy continues to demonstrate resilience, this shift towards a data-driven market is likely to increase short-term volatility while creating new investment opportunities.

This shift became evident during the week as Federal Reserve Chair Kevin Warsh reiterated that inflation remains above the central bank's 2% target while providing no indication of a potential July interest rate decision. His refusal to offer forward guidance signals a deliberate move towards greater policy flexibility but also introduces greater uncertainty into financial markets. Consistent with this approach, weaker-than-expected June labour market data and moderating inflation expectations prompted investors to reduce expectations for additional Federal Reserve rate hikes this year, leading to lower Treasury yields, a weaker US dollar and a rebound in gold prices. Nevertheless, policymakers continue to emphasise that inflation remains too high, suggesting that monetary policy is likely to remain restrictive until there is stronger evidence that inflation is sustainably returning to target.

Despite this uncertainty, equity markets remained resilient. The S&P 500 recorded its strongest quarterly performance since the post-pandemic recovery in 2020, supported by solid corporate earnings, improving inflation dynamics and continued confidence in long-term artificial intelligence investment. Although semiconductor and technology shares experienced periods of profit-taking as investors reassessed elevated valuations, the broader AI investment cycle remains firmly intact. Continued investment in semiconductors, cloud computing, electricity infrastructure and digital transformation, together with the US government's decision to remove foreign access restrictions on Anthropic's latest AI model, reinforces the country's commitment to maintaining global leadership in artificial intelligence.

Trade policy also re-emerged as a source of uncertainty after the United States announced that the US-Mexico-Canada Agreement (USMCA) will undergo annual reviews rather than receiving a longer-term renewal. Although the agreement remains in force, more frequent negotiations could increase uncertainty for businesses operating integrated North American supply chains, particularly across the automotive, manufacturing, agriculture and energy sectors. At the same time, easing geopolitical tensions in the Middle East, improving shipping conditions through the Strait of Hormuz and expectations of a global oil surplus have reduced inflationary pressures and improved the outlook for businesses by lowering energy and transportation costs.

From an investment perspective, the short-term outlook is likely to remain characterised by higher market volatility as investors react more directly to incoming economic data in the absence of explicit Federal Reserve guidance. Portfolio positioning may therefore favour high-quality companies with resilient earnings, strong balance sheets and stable cash flows, together with selective exposure to financials and investment-grade fixed income, which continue to benefit from relatively attractive yields. Long-term investors, however, should remain focused on structural investment themes that continue to underpin economic growth, including artificial intelligence, semiconductors, electricity infrastructure, cybersecurity and defence. While the recent reversal of the debasement trade has reduced demand for gold in the short term, persistent fiscal deficits and rising public debt continue to support maintaining strategic allocations to real assets as portfolio diversifiers. Overall, although market leadership is becoming more selective, the US investment outlook remains constructive, supported by resilient economic fundamentals, technological innovation and a gradual transition towards a more data-driven monetary policy environment.

EU Market Summary

The Eurozone entered the third quarter on a more constructive footing as easing inflationary pressures, improving business confidence and greater economic resilience strengthened the region's outlook. While the European Central Bank raised interest rates in June in response to the energy-driven inflation shock caused by the Iran conflict, the sharp decline in oil prices following progress in US-Iran peace negotiations has significantly altered the macroeconomic landscape. ECB President Christine Lagarde recently noted that risks to both inflation and economic growth have become more balanced, suggesting that the central bank is moving away from an environment dominated by inflation concerns towards one where supporting economic growth is becoming increasingly important. This shift has reduced expectations for further aggressive monetary tightening, providing a more supportive backdrop for both European equity and fixed-income markets.

Europe's resilience has also become increasingly evident. Lagarde highlighted that stronger banking regulation, improved fiscal governance and continued investment in the green transition have significantly reduced the region's vulnerability to external shocks. The Eurozone successfully absorbed the collapse of Silicon Valley Bank, navigated global trade disruptions and withstood one of the largest oil supply shocks in recent history without experiencing widespread financial instability. These developments suggest that structural reforms implemented over the past decade are beginning to strengthen the region's financial stability and economic resilience, increasing investor confidence despite ongoing geopolitical uncertainty.

Economic data also indicate that the Eurozone may be approaching a gradual recovery. The S&P Global Eurozone Composite PMI improved to 50.0 in June, signalling that private sector activity has stabilised after two months of contraction. Manufacturing output strengthened, while declines in services activity moderated, supported by stronger business activity in Italy, Spain and Ireland. Although Germany and France remain in contraction, the pace of decline has eased, while business confidence has risen to its highest level since the outbreak of the Middle East conflict. Inflationary pressures have also continued to moderate, with both input and output cost growth slowing from recent peaks, reinforcing expectations that the ECB may soon be nearing the end of its tightening cycle.

Nevertheless, challenges remain. Germany's decision to increase net borrowing to €118 billion for 2027 reflects weaker-than-expected tax revenues, higher debt servicing costs and increasing fiscal pressures associated with a slowing economy and elevated interest rates. While additional government borrowing may provide short-term fiscal support and help sustain public investment during a period of subdued growth, it also increases sovereign debt levels and future interest expenses, potentially limiting fiscal flexibility if economic conditions deteriorate further. For investors, higher government borrowing could increase sovereign bond supply and place modest upward pressure on longer-term bond yields. However, if the additional spending successfully supports economic activity and infrastructure investment, sectors such as construction, industrials and renewable energy could benefit over the medium term.

From an investment perspective, the near-term outlook for Europe has become increasingly constructive. Easing inflation, stabilising economic activity and a less aggressive European Central Bank support high-quality European equities, government bonds and interest rate-sensitive sectors, including utilities, infrastructure and real estate. Continued investment in electrification, renewable energy, industrial automation and artificial intelligence infrastructure also provides attractive long-term structural opportunities. However, investors should remain selective, as weak domestic demand and sluggish manufacturing activity continue to weigh on parts of Germany and France. Over the longer term, Europe's improving financial resilience, stronger regulatory framework and commitment to the green transition position the region to benefit from structural investment trends, although fiscal sustainability and slower potential economic growth remain important risks to monitor.

UK Market Summary

The UK economy remained fragile this week, with private sector activity contracting for a second consecutive month. However, improving business confidence, easing inflationary pressures and expectations that the Bank of England is approaching the end of its tightening cycle suggest that economic conditions may be beginning to stabilise despite continued weakness in domestic demand. The latest S&P Global UK Composite PMI fell to 49.3 in June, remaining below the 50-point threshold that separates expansion from contraction. While the services sector continued to weaken, manufacturing remained in expansionary territory, highlighting an uneven recovery across the economy. Private sector sales declined at their fastest pace since April 2025, employment continued to fall as businesses responded to higher National Insurance contributions and elevated operating costs, and backlogs of work increased, reflecting weaker demand rather than stronger business activity.

Despite these headwinds, the macroeconomic backdrop has become more supportive. Easing geopolitical tensions in the Middle East contributed to lower energy prices, helping moderate both input cost and output price inflation. At the same time, Bank of England Governor Andrew Bailey maintained a cautious policy stance, acknowledging that inflation remains on track to return to the 2% target, although later than previously expected, while indicating there is no urgency to adjust monetary policy. This more balanced outlook has encouraged investors to reduce expectations of further aggressive interest rate increases, supporting both UK government bonds and domestic financial markets.

The FTSE 100 continued to outperform many international peers, reaching its highest level since early March and recording another week of gains. Investor sentiment was supported by expectations of a more stable interest rate environment, easing inflation and renewed demand for defensive sectors. Utilities, healthcare, financials and mining stocks outperformed as investors favoured companies with resilient earnings, attractive dividend yields and internationally diversified revenue streams. Meanwhile, political uncertainty surrounding the expected transition of government had only a limited impact on financial markets, with investors placing greater emphasis on macroeconomic fundamentals and monetary policy.

From an investment perspective, the near-term outlook remains cautiously constructive. Investors may continue to favour defensive sectors such as utilities, healthcare, consumer staples and high-quality financial institutions, which are better positioned to perform in an environment of slower economic growth and relatively elevated interest rates. Long-term investors may also find opportunities in UK infrastructure, renewable energy and selected industrial companies as lower inflation and a more stable interest rate outlook gradually support investment activity. Nevertheless, domestically focused consumer discretionary businesses, commercial real estate and highly leveraged companies may continue to face headwinds until stronger evidence of a broader economic recovery emerges. Overall, while the UK economy continues to experience cyclical weakness, improving inflation dynamics, resilient financial markets and a more predictable monetary policy outlook provide a stronger foundation for a gradual recovery over the medium term.

Source: CNBC, Bloomberg, FTnews, TradingEconomics and Reuters.

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