Weekly market commentary

Market review

In a week that delivered inflation data from the UK and Japan, as well as monetary policy decisions from 3 key central banks, it was escalating conflict and unrest in the Middle East that stole the headlines. As Israel and Iran continue to trade blows, US President Donald Trump has pivoted his rhetoric from pushing for negotiations to calling for Iran’s “unconditional surrender”, whilst a tweet from Vice President JD Vance hinted that the US may be considering direct involvement in the conflict.

As expected, the Federal Reserve held its policy rate steady at 4.25% – 4.50%, with Chair Powell adopting a balanced tone in his remarks. He acknowledged that inflation has moderated significantly but remains above the Fed’s long-run target of 2%. Powell also highlighted the continued strength of the labour market, pointing to the consistently low level of unemployment. However, he tempered this optimism with caution, citing ongoing economic uncertainty, particularly around the potential impact of new tariffs on growth and inflation dynamics.

UK inflation eased slightly from 3.5% to 3.4% in May and, as anticipated, the Bank of England held its policy rate at 4.25%. The Monetary Policy Committee’s (MPC) rationale for leaving the rate unchanged is broadly consistent with prior meetings, as UK Gross Domestic Product (GDP) growth remains stagnant and unemployment has ticked up over the past 12 months, signalling pressure in the labour market. However, whilst the policy rate remained unchanged, a shift in voting opinion from the Deputy Governor marks the third member of the nine strong committee to call for a 0.25% cut in the rate, a sign that the balance of opinion is shifting within the MPC, which has increased market expectations for a rate cut in the coming months.

Equity markets have been mixed. The US was closed on the 19th for Juneteenth celebrations, having had a broadly flat week to that point, with Asian equity indices down between 0.5% and 2%, possibly due to higher oil prices, as the situation in the Middle East evolves. Government bond yields remained largely unchanged, with markets unmoved by central banks’ status-quo messaging.

Outlook

The economic environment has remained resilient, but rising geopolitical tensions and trade uncertainty may begin to weigh on sentiment. The recent escalation between Iran and Israel has heightened global risk, while legal challenges to the US administration’s proposed tariffs have slowed their rollout. This delay has offered a temporary reprieve for policymakers and trade partners, but markets remain sensitive to further developments.

Movers table