Weekly market commentary

Market review

The conflict between Israel and Iran intensified, with both sides trading missile strikes across borders, before US intervention in striking Iranian nuclear facilities culminated in a ceasefire being brokered – which was almost immediately broken, before relative calm was restored to the situation. It’s been a chaotic week on the geo-political front, added to by conflicting stories about how much damage the US airstrikes on Iran have had on their nuclear capabilities. The US suggested significant damage had been done, while the Iranian’s rebutted this by stating they “did not achieve anything”. Market reaction to the conflict has been relatively considered, with volatility in oil prices being the outlier, with Iran being a key exporter of oil across the globe. Brent Crude rose from c.$63 a barrel before the conflict began to almost $80 at the height of the tensions, before retreating back to around $68.

Jerome Powell, current Chair of the Federal Reserve, has been put under pressure from the US Government to bring interest rates down meaningfully and talk from the US President of announcing his replacement earlier than the end of his current term (May 2026) has only added to the uncertainty of his position. Despite some members of the Fed publicly stating their desires to cut rates faster, Powell reiterated to Congress that higher tariff rates on US imports could begin raising inflation this summer, a key period for the central bank’s consideration of interest rates, and urged caution of cutting rates too much too quickly. On balance, bond investors have slightly increased their forecasts for the number of cuts this year and government bond yields have come down to reflect this. With the Fed’s data dependent approach to rate setting, there would no doubt have been attention on the latest GDP and unemployment reports. GDP decreased at a downwardly revised 0.5% annualised rate last quarter, while continuing claims for state unemployment rose to their highest levels since November 2021, suggesting that the US labour market may be starting to crack and growth is beginning to slow.

At the NATO summit, held in the Netherlands on 24th -25th June, member nations agreed to a 5% of GDP defence spending plan, comprised of 3.5% core military spending and 1.5% on defence related areas such as infrastructure and cyber security. Meanwhile, the German government agreed on a budget draft up to 2029. The fiscal package sent a strong signal that the government wants to progress with this at pace, with EUR 200bn to be spent this year in the hope that this spurs recovery in private investment.

On the trade front, US Commerce Secretary Howard Lutnick announced that the US and China have finalised a trade agreement, while adding that there are imminent plans to reach deals with 10 other major trading partners. It is not yet clear if one of these partners is the European Union, who have commented that while they are ready to strike a deal with the US, they are preparing for the possibility that no satisfactory agreement is reached.

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