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

The US Federal Reserve (Fed) left its interest rates unchanged, but struck a hawkish tone, with nine officials now projecting a rate hike by year-end and Chair Warsh signalling a structural shift away from forward guidance. AI-related technology led equity markets – semiconductors were up 6.7% – while energy fell sharply. Japan and South Korea outperformed; China lagged behind. Credit was stable, the USD strengthened, and gold retreated to USD 4,150/oz.

Macroeconomics

Consumer confidence has been a poor guide to consumer spending, with May’s retail sales confirming as much: sales rose by 0.9% m/m, almost double the 0.5% consensus, and the fourth consecutive monthly gain. A 3.4% m/m jump in petrol-station receipts did much of the work, but the control group still rose by a firm 0.7% m/m. That resilience is now the central question hanging over the Fed: is its policy still restrictive enough? Half of the FOMC’s voting members no longer think so.

Warsh’s committee voted unanimously (12–0) to hold rates at 3.50–3.75%, but the dot plot told a different story: of the 18 officials who submitted projections, nine now see at least one hike by year-end, up from a March forecast that still pointed to a cut. Warsh also used the meeting to launch a broader reform agenda: five task forces covering communications, data, the balance sheet, the inflation framework and forward guidance, and he declined to submit his own dot, consistent with his scepticism of the exercise. The statement shrank to 130 words, down from 341 in April, which already shows Warsh’s touch at work.

We think the Fed should keep its rates on hold through 2026, as most of the overshoot is a supply story, driven by energy rather than excess demand. Also, inflation expectations have decreased, in line with energy prices, which lowers the risk of spiralling inflation emerging.

The Fed was not alone in leaving interest rates where they were: the Bank of England (BoE) did the same, but two members of the Monetary Policy Committee (up from one in April) dissented in favour of a 25-bp hike, citing second-round inflation risks. This caution looks out of step with the data: energy prices have fallen, and headline and core inflation for May are tracking below the BoE’s own forecasts (2.8% vs. 3.3%; 2.6% vs. 2.8%), helped by downside surprises concentrated in core goods and ‘super-core’ services. With the labour market still soft, that could be enough for the BoE to keep rates on an even keel through 2026. The Swiss National Bank (SNB) reached a similar conclusion, keeping its rate at zero as inflation tracks close to the forecasts. However, the Bank of Japan (BoJ) broke ranks, raising its policy rate by 25 bps to 1.0%.

Next week’s US PMIs will show whether momentum is holding into Q3. The May core PCE report, due out on 25 June, will test the Fed's supply-side read on inflation. In the eurozone, flash PMIs for manufacturing and services will be published, alongside German Ifo surveys.

Equities

Global equities rose by 1.2% over the week in a risk-on environment, supported by progress on the US–Iran peace agreement and lower oil prices. The easing of geopolitical and energy-price pressures helped investors absorb a more cautious Fed message, with policymakers leaving rates unchanged. US trading was also shortened by the Friday market closure, making weekly performance less directly comparable with other regions.

Technology continued to lead, with information technology up 4.3%. Within the sector, performance was concentrated in semiconductors (+6.7%) and technology hardware (+4.9%), confirming that the AI infrastructure theme remains the main driver of market leadership. Software, however, continued to lag behind (-2.7%), reflecting persistent concerns over AI disruption and pressure on business models. SpaceX also remained in focus, rising another 15.0% during the week after gaining almost 20.0% since its IPO the previous week. Defensive sectors lagged behind, while energy fell sharply (-6.2%) as the oil risk premium faded.

Regionally, Japan and emerging markets caught up after underperforming the previous week. The MSCI Japan rose by 5.3%, supported by renewed demand for technology, exporters and higher-beta markets. Emerging markets gained 4.1%, led by AI supply-chain countries, with South Korea up 12.5% and Taiwan up 5.2%. China, however, underperformed within EM, as weak retail sales highlighted persistent pressures on domestic demand. Europe ex-UK gained 1.4%, while the US rose 1.0% despite the shortened trading week. Switzerland lagged behind at +0.6% as a consequence of its defensive and healthcare bias, and the UK declined -1.2%, weighed down by energy and defensive-sector weakness.

Overall, the week was defined by stronger risk appetite, continued leadership from AI-related technology, and a catch-up in Japan and EM, led by South Korea and Taiwan, while China remained constrained by weak domestic demand. The key event this week will be Micron Technology’s earnings release; expectations are high, but demand for memory products, particularly dynamic random-access memory (DRAM), continues to exceed supply. Results will provide an important read-across for the broader semiconductor and AI infrastructure ecosystem.

The AI infrastructure theme remains the main driver of market leadership

Fixed income

The week was filled with market-moving events. Yields fell early as the US and Iran agreed an interim memorandum of understanding (MoU), only for the front end to hand the move back after an eventful mid-week Fed meeting. US 2-year yields ended 10 bps higher at 4.18%, while the 10-year slipped 3 bps to 4.45%. Treasuries and IG were unchanged, HY returned 0.1%, AT1s 0.2% and EM 0.4%.

The Fed kept rates unchanged, but the median dot for end-2026 rose to 3.8% from 3.4% in March, tilting the path towards a hike. 17 of 18 participants now see the risks to inflation skewed to the upside, while markets are reading it hawkishly, with front-end yields up 11 bps on the day and futures now pricing in a hike as early as September.

The more durable story is Kevin Warsh’s overhaul of how the Fed communicates. The statement itself was cut back from 340 words to 130, stripping out the easing-leaning language and leaving little beyond a restatement of the price-stability mandate. Warsh declined to submit his own dot, in line with a long-standing scepticism of forward guidance, and kept the press conference short, reaffirming price stability rather than steering the next move; indeed, none of this should come as a surprise. Warsh is pulling the committee back from the transparency of the Bernanke, Yellen and Powell years towards the Greenspan-era reliance on constructive ambiguity. He brushed off repeated attempts to cast the meeting as hawkish, stressing a meeting-to-meeting approach that leaves room to pivot. In our view, he effectively killed the hawkish signal embedded in the dot plot even as the dots themselves moved higher.

Warsh established five task forces, due to report by year-end, though his record suggests where most should land. Forward guidance and his own dot are gone, as he has long argued for less communication. He favours a smaller balance sheet, even if the statement kept ample reserves and flagged no near-term run-off, while on data sources Warsh wants more done to filter out one-off shocks. Productivity is the most consequential of the five task forces, with Warsh having argued that AI-driven supply gains can deliver growth without inflation, easing the Phillips Curve trade-off and, in time, making the case for lower rates. That said, less guidance should, over time, lift the volatility of rate expectations and with it term premium and nominal yields.

Over the weekend we were reminded of how fragile the truce in the Middle East is. Planned US–Iran talks in Switzerland were delayed, Tehran again restricted traffic through the Strait of Hormuz and raised the issue of mandatory insurance for transiting vessels.

Last, we now have first-quarter fundamental data. US IG leverage has stayed in the 2.25–2.4x range in place since 2021, while HY metrics improved slightly. Estimates point to double-digit earnings growth, which should keep these metrics healthy. In EM, earnings momentum is the strongest since 2021, led by tech manufacturing, petrochemicals and commodities. Banks are steady, and IG net leverage is sitting close to its lows.

The more durable story is Warsh’s overhaul of how the Fed communicates

Forex & Commodities

The USD made gains across the board last week, with the Dollar Index rising above 101. The Fed’s decision to drop its easing bias was the key driver, raising the bar considerably for any resumption of rate cuts. PCE inflation data and PMI releases are the main events to watch this week.

The JPY weakened following the BoJ’s policy meeting, where it raised rates by 25 bps, taking the policy rate to 1.00%. The USD/JPY rose to levels of 161.50 and the BoJ was conspicuous by its absence with no signs of verbal interventions. Headline inflation data printed in line with expectations at 1.5% y/y, giving no reason for further aggressive rate hikes in the near term. We see no chance of an imminent phase of JPY appreciation despite favourable valuations.

The GBP traded flat following the BoE’s Monetary Policy Committee meeting, where it kept rates unchanged at 3.75%, as expected. Markets have priced in only one 25-bp rate hike later this year, as the BoE is adopting a wait-and-see approach on the inflation front. Headline CPI printed below expectations for the second consecutive month, showing that the pass-through from higher oil prices has not been as severe as originally anticipated. The main events this week will be the publication of PMI data, and markets will also be watching the UK political transition closely, following Prime Minister Starmer’s resignation this morning.

Gold fell from levels of around USD 4,350 per oz to lows of around USD 4,150 per oz, following the Federal Reserve meeting. The prospect of a ‘higher-for-longer’ interest rate regime weighed on gold. We note that oil prices continue to fall, suggesting that pass-through inflation effects should be limited over the coming months. This should provide some degree of support for gold, and we maintain our expectation of an eventual rise to levels of above USD 5,000 per oz.

The BoJ was conspicuous by its absence with no signs of verbal interventions

The opinions expressed herein are correct as at 22 June 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.