Weekly market commentary

Markets entered the week balancing renewed geopolitical tensions against growing questions around the next phase of the AI investment story. Equity markets delivered mixed performance through the week, with broader market resilience and growing optimism ahead of earnings season helping keep major indices modestly positive, although weakness across technology and semiconductor shares reflected increasing investor scrutiny of AI-related valuations. Reports suggesting major AI providers are improving model efficiency and reducing infrastructure requirements, raised fresh questions around spending plans among the largest AI and cloud computing companies, while weakness across several semiconductor names highlighted increasing investor sensitivity to AI-related valuations. While technology stocks faced pressure from AI-related concerns, geopolitical developments quickly added a further layer of uncertainty for investors, as the fragile ceasefire between the US and Iran appeared to unravel. The exchange of strikes between both sides pushed oil prices higher and revived inflation concerns, although subsequent indications that Iran may still be willing to negotiate left the outlook far from clear. 

Meanwhile, NATO leaders gathered in Ankara to discuss defence spending and burden-sharing commitments, reinforcing the view that defence spending, fiscal expansion and strategic autonomy remain important structural themes across Europe, as the US continues to push its European counterparts towards taking greater responsibility for their own security. 

Beyond the geopolitical noise, the global growth backdrop continues to show signs of relative resilience, although policy makers remain focused on inflation risks. US services activity softened in June but remained consistent with positive growth, while employment indicators suggested the labour market remains resilient. Fed Governor Christopher Waller emphasised that inflation risks remain a key policy consideration, reinforcing the message that policymakers are not yet ready to declare victory over price pressures. In Europe, Germany's latest budget plans reinforced the shift towards higher defence and infrastructure spending, further highlighting the region's move toward a more fiscally expansionary policy regime, and the increasingly important role fiscal policy is playing in supporting European growth.