Weekly market commentary

Global markets delivered mixed returns over the week as investors balanced resilient growth against persistent inflation risks. UK equities outperformed, benefiting from strength in energy and defensive sectors, while US equities were little changed and emerging markets lagged, with weakness in Asia and China weighing on sentiment. Despite elevated yields, global sovereign and corporate bonds generated modest positive returns, while the US dollar strengthened. Although Brent crude retreated 2% during the week, it remains up more than 68% year-to-date, keeping energy-driven inflation risks firmly on the market's radar.

The Federal Reserve raised interest rates by 25 basis points to 3.75%-4.00% and signalled that further tightening remains possible, citing resilient economic growth and persistent inflation pressures. While policymakers revised their projections for both growth and inflation higher, markets largely welcomed the decision as evidence that the Fed remains committed to maintaining price stability. US Treasury 10-year yield, which briefly moved above 5% earlier in the week, retraced some of their gains following the announcement but remain close to cycle highs as investors continue to balance sticky inflation, robust economic activity and longer-term fiscal concerns.

In the UK, the Bank of England left interest rates unchanged at 3.75%, but struck a cautious tone as it balances renewed inflation risks from higher energy prices against signs of a slowing economy. Recent data suggest the labour market is cooling, with softer hiring, fewer vacancies and moderating wage growth. However, concerns that rising energy costs could keep inflation elevated have reduced the Bank's flexibility. In a supportive move for bond markets, the BoE also announced significant changes to its quantitative tightening programme, including suspending planned sales of long-dated gilts, helping to ease concerns around future gilt supply.

In Japan, the Bank of Japan raised rates to 1.25% and signalled that further policy normalisation remains on the table despite slightly softer inflation data. Meanwhile, China's latest data continued to highlight a two-speed economy, with resilient exports and manufacturing offsetting weak consumer demand, investment and property activity.