Nicolas Laroche

In June, we highlighted a paradox: a demanding macroeconomic environment, yet markets buoyed by exceptional corporate earnings. The mid-year point validates that reading and brings with it a turning point. The recent agreements between the United States and Iran have drawn a line under the energy shock that dominated the first half of the year, and the landscape now opening up is a different one, calling for greater selectivity.

Cooling US employment and easing eurozone inflation are strengthening the case for an extended pause from both the Federal Reserve (Fed) and the European Central Bank (ECB) – a supportive backdrop for risk assets.

A fading energy shock drove developed market rates lower, even as US personal consumption expenditure (PCE) inflation surprised on the upside at 4.07% y/y, with artificial intelligence (AI)-related costs emerging as a new structural source of price pressure.

Global equities rose 1.2%, supported by progress on the US–Iran agreement and lower oil prices.

A tentative US-Iran ceasefire drove a broad-based rally across rates, credit and risk assets last week, even as US inflation data sent mixed signals. Government bonds rose sharply as falling oil prices eased pressure on central banks.

In May, we anticipated fragmentation of global growth against a backdrop of persistently elevated interest rates and energy prices. That scenario has since materialised with a level of precision that, far from surprising us, reinforces our structural reading of markets.

A stronger-than-expected US jobs report shattered nine weeks of US equity gains, triggering a violent rotation out of semiconductors and forcing markets to reprice the Federal Reserve’s (Fed) policy path higher.

Global equities hit new all-time highs, bonds rallied, and credit tightened, all on the hopes of a US–Iran ceasefire that remains, as yet, unsigned.

Markets were driven by shifting rate expectations and geopolitical developments, with US–Iran tensions adding volatility.