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.

Equities posted modest gains, with semiconductors leading returns while mega-cap technology stocks lagged behind amid a wave of artificial intelligence (AI)-related IPOs. The dollar weakened slightly and gold extended its advance, as markets turn their attention to a packed week of central bank meetings, including Kevin Warsh’s first as Federal Reserve (Fed) Chair.

Macroeconomics

Inflation fears seem to be behind us, at least if you look at falling inflation expectations or believe Donald Trump’s peace deal announcement. However, May’s consumer price index (CPI) told a more complicated story: while headline inflation surged to 4.2% year-on-year (y/y), its highest since April 2023, core CPI offered some respite and rose by less than expected (0.2% versus 0.3% month-on-month (m/m) previously), with core goods prices posting their first monthly decline in over a year, a sign that tariff-driven pass-through effects may be fading. Shelter and broader services inflation remain well below their post-pandemic highs, and even slowed further, reinforcing the case that the shock remains concentrated in energy- and import-sensitive categories rather than a broad reacceleration across the consumer basket.

Nevertheless, it is hard to cheer softer core inflation when producer prices remain stubbornly firm. The core producer price index (PPI) for final demand less foods, energy, and trade services rose 0.8% m/m in May, its largest monthly gain since March 2022, and is now running at 5.1% y/y, more than two full points above consumer-side core inflation. This gap will close through some combination of margin compression in import-sensitive sectors and gradual pass-through into the price of services, enough to keep the personal consumption expenditures (PCE) index (the Fed’s preferred gauge) uncomfortably above target. In this scenario we expect the Fed to put any change in interest rates on hold as they monitor any broadening of inflationary pressures.

In Europe, the European Central Bank (ECB) raised its deposit rate to 2.25%. Executive Board member Isabel Schnabel had argued forcefully that the bank could no longer look through the energy shock, warning that the risk of de-anchoring inflation expectations was rising. The Governing Council declined to pre-commit to a path, stressing data dependence amid war-related uncertainty and volatile oil prices. The silver lining here is that second-round effects and wage growth remain contained, limiting the risk of spiralling inflation and validating our scenario of one ECB interest rate hike this year.

Looking ahead, Kevin Warsh chairs his first Federal Open Market Committee (FOMC) meeting this week. Another firm inflation print will strengthen the case for the Fed to drop its easing bias while holding steady on interest rates; policymakers will recall that recent inflation data continue to write more of a supply-side story than a demand-side one. The Swiss National Bank (SNB) and Bank of England (BoE) should hold their respective rates steady, while the Bank of Japan (BoJ) looks set to tighten further.

Equities

Global equities delivered modest gains this week (MSCI ACWI +0.6%), with mixed performances beneath the surface. Early in the week, renewed US-Iran tensions and the anticipation of the US CPI release pushed investors towards lagging behind defensive sectors such as consumer staples and healthcare, while communications services underperformed (-1.5%). Sentiment improved as the week progressed, as inflation remained stable and hopes for progress in US-Iran negotiations increased. Financials (+2.3%) and materials (+1.4%) rebounded, while energy slipped (-0.4%).

The week’s other major event was the record SpaceX IPO, which raised USD 75 billion and saw shares gain 19% on their first day of trading. OpenAI recently confirmed its intention to pursue an IPO, potentially as early as September, following Anthropic’s IPO announcement a few weeks earlier. Together with recent capital-raising plans announced by Alphabet and Meta, this reinforces expectations for a significant wave of equity issuance from leading AI companies.

As a result, technology was broadly flat over the week (+0.3%). Under the surface, however, performance diverged significantly: semiconductors (+4.8%) remained the primary contributors to market returns, while the Magnificent Seven declined by 2.5%, partly reflecting investor positioning ahead of the SpaceX listing and the broader rotation out of mega-cap growth stocks.

Regionally, Switzerland (SPI +2.1%) and Europe (STOXX 600 +1.7%) outperformed, while Japan (-0.9%) and China (-0.7%) lagged behind. The S&P 500 matched global equity performance, advancing 0.6%.

This week, investors will focus on two key issues: first, whether the announced interim peace agreement in the Middle East translates into a formal deal and concrete actions capable of sustaining the recent improvement in sentiment and reducing energy-market uncertainty; second, attention will turn to the Fed’s rate decision. We expect no change in policy rates, with the Fed likely to maintain a cautious stance while monitoring inflation and energy prices.

Should the peace agreement be confirmed, the sectors most penalised by higher energy prices – including consumer discretionary and other rate-sensitive areas –, as well as regions such as Europe and Asia, should continue to recover.

Beyond the near term, the key market driver remains the AI investment cycle and the growing race for capital-raising, as a wave of large IPOs and broader equity issuance increasingly competes for market liquidity.

Beneath the surface, performance diverged significantly: semiconductors remained the primary contributors to market returns, while the Magnificent Seven declined.

Fixed income

Government bonds across developed markets rallied last week, led by the front end. The catalyst was oil, with Brent crude falling by more than 6% over the week to its lowest since early March as a US-Iran deal moved within reach and May’s core CPI undershot expectations, even if headline inflation pushed higher and producer prices stayed firm. Two-year yields fell by 7 bps in the US to 4.08%, 8 bps in Germany to 2.62% and 10 bps in the UK to 4.24%, while ten-year yields fell by less, leaving all three curves a touch steeper.

Returns were positive across the board, with emerging-market debt leading at 0.6%, investment grade (IG) and high yield (HY) each at 0.4%, Treasuries at 0.3% and additional tier 1 (AT1s) at 0.2%. Rating actions in EM corporates were firmly sovereign-driven, with sovereign upgrades in Argentina and South Africa feeding through to their corporates, and upgrades outnumbering downgrades by three to one, a trend that has been in place for several years now.

On Sunday, the US and Iran announced a deal to end their conflict in the Middle East, with a formal signing set for Friday 19 June in Switzerland and the draft terms committing to a reopening of the Strait of Hormuz within 30 days. Rates extended their rally into Monday morning, with US and European curves down by 5 bps and UK rates moving more. At time of writing, US 10-year rates stand at 4.43%, down from a year-to-date high of around 4.70% in mid-May.

Though the peace deal remains tentative, it should ease the pressure on central banks to hike rates, allowing energy markets to normalise gradually and policymakers to treat the inflation spike as the supply-driven shock it is. The ECB had only just raised its deposit rate to 2.25%, having concluded it could no longer look through the energy shock given the risk of inflation expectations de-anchoring rate rises. The normalisation will take time, and Saudi Aramco has cautioned it could stretch into next year; nonetheless, the upward pressure on rates over the past three months should now begin to fade.

For spreads, a finalised deal of some form should offer further comfort, though the reaction may prove mixed, as a benign outcome has largely been priced in. That said, lower oil prices, reduced recession risks and the removal of re-escalation tail risks should be a net positive for EM and HY spreads over the medium term.

Kevin Warsh chairs his first FOMC meeting on 17 June, at which the Fed is expected to hold rates steady while removing its easing bias. With the tentative reopening of the Strait of Hormuz and a change in Fed leadership, the statement and Wednesday’s press conference will warrant close attention, indeed, all the more so, as Warsh has signalled a preference for a leaner Fed that communicates less and leans away from the detailed forward guidance markets grew used to under Powell. The SNB and BoE also meet this week, with both expected to keep rates unchanged.

The upward pressure on rates over the past three months should now begin to fade.

Forex & Commodities

The USD weakened slightly following the US-Iran ceasefire announcement. The ceasefire means that central banks can take a less hawkish stance on rates in the near term, which has been constructive for lower-yielding currencies and non-yielding precious metals. The main event for the USD over the coming week is Wednesday's FOMC meeting. The Fed is likely to deliver a hawkish hold, i.e. keeping rates unchanged at 3.75% and removing its easing bias. Kevin Warsh will give his first press conference as Fed Chair, and we can expect a material change in communication style from the central bank. Overall, we do not anticipate any substantial USD weakness following the FOMC meeting.

The BoJ is likely to raise its deposit rate at this week’s meeting, taking it to 1%. This has been widely priced in, and it is unlikely to result in any significant JPY appreciation. The BoJ is likely to continue with its wider narrative of raising rates if the economy develops in line with its forecasts. We struggle to see a catalyst for aggressive JPY appreciation in the short term, despite favourable valuations and interest rate spreads which are more consistent with lower USD/JPY exchange rate levels.

The BoE will meet on Thursday, and it is likely to keep rates on hold at 3.75%, giving guidance for a potential rate hike later this summer. UK inflation data remain above target, but they have disappointed relative to expectations in recent weeks. UK labour market data have continued to weaken. There are also political risks on Thursday, with a by-election taking place in Manchester; Labour candidate Andy Burnham appears set to win the by-election, paving the way for him to challenge Prime Minister Starmer for the leadership of the party. Such a move could be a burden for sterling, given Burnham’s well-known preference for higher levels of taxation.

The Reserve Bank of Australia (RBA) is set to keep rates unchanged at 4.35% – and we note that markets have started to price out the last RBA rate hike in this cycle – given recent disappointments on inflation data. RBA Governor Bullock has maintained a hawkish stance in recent communications, and we anticipate that the RBA statement will maintain the option of one last rate hike. Investors can expect the AUD/USD to trade at the lower end of recent trading ranges in the near term.

Gold traded higher to levels above USD 4,300 per oz following the US-Iran ceasefire announcement. Lower oil prices should reduce second-round inflation pressures, which in turn should narrow the scope for aggressive rate hikes, thus benefiting non-yielding precious metals. A sustained ceasefire is unequivocally constructive for gold, and this development should limit the scope for any material downside in the near term.

A sustained ceasefire is unequivocally constructive for gold, and this development should limit the scope for any material downside in the near term.

The opinions expressed herein are correct as at 15 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.