Key points: Equity markets remain volatile but resilient; inflation and energy risks are keeping central banks cautious; technology stocks have driven much of June’s market turbulence; and we continue to favour staying invested while managing geopolitical and policy risks.
Global equity markets were highly volatile throughout June. Early rallies to record highs were followed by a steep, AI-led sell-off in technology stocks. Investors have also had to contend with geopolitical uncertainty in the Middle East, stop-start negotiations between the US and Iran, and disruption in energy markets. Oil prices have continued to rise and fall as markets assess the likelihood of a resolution.
Nevertheless, equity markets have performed relatively well over the year. This reflects the forward-looking nature of markets: investors tend to weigh near-term risks against the longer-term outlook. In recent weeks, optimistic US corporate earnings, a resilient economy and a broader set of investment opportunities have all been positive signals for the continuation of this bull market.
Although geopolitics have influenced near-term inflation expectations, markets continue to distinguish between short-term price increases and more persistent pressures. So far, recent developments have been treated as temporary headwinds rather than structural concerns.
The biggest factor affecting market sentiment has been the more cautious tone from some of the world’s major institutions. The World Bank has reduced its global growth forecast for 2026 to 2.5%, the slowest rate since the pandemic. The OECD has warned that prolonged disruption in the Persian Gulf could push global growth down to 2.1% for the year. The United Nations Conference on Trade and Development has also pointed to slower growth, weaker trade and persistent uncertainty.
Energy prices and shipping costs remain the main pressure points. Fertiliser prices are adding to inflation risks, while higher container-shipping rates reflect disrupted trade routes and port congestion. Together, these pressures are squeezing businesses and reducing the likelihood that central banks will be able to ease policy soon.
Although the World Bank has indicated that global inflation could rise towards 4% in 2026, the recent direction of travel has been relatively stable. Even so, the European Central Bank raised its key rate by 25 basis points on 17 June. Inflation has picked up again, and the bank remains committed to bringing it back to its 2% medium-term target. It also highlighted inflationary pressures linked to the Middle East conflict, particularly higher energy prices that could spill over into food, goods and services.
In the UK, the Bank of England held rates steady at 3.75% at the latest meeting of its Monetary Policy Committee. Policymakers judged that the inflation outlook remained too uncertain to justify a move, given higher energy prices and volatility in the Middle East. They also noted that inflation remains above target at 2.8%, while wage and price-setting risks persist. The labour market is cooling, but is not yet weak enough to force a rate cut.
Sir Keir Starmer has resigned as Labour leader and said he will step down as prime minister after mounting pressure from his party. He acknowledged the growing desire among Labour MPs for somebody else to lead the party into the next general election. This follows months of internal pressure, barely two years after the party’s 2024 election win. Currently, the odds are firmly in Andy Burnham’s favour to become the next prime minister and Labour leader.
Global bond markets have experienced mixed fortunes this month. The broader tone was weak-to-neutral, with yields staying elevated as inflation and fiscal concerns maintained pressure on prices. UK, US, and many European government bonds traded at higher yield levels, while global aggregate returns had already given back much of their earlier 2026 gains.
Similarly, the picture in commodity markets is of a rotation rather than a single commodity rally or pullback. Industrial metals and some soft commodities have held up better, while oil-related markets have been more volatile and under some pressure. A June market report shows that gold and silver have been weak alongside a volatile crude oil market. Natural gas prices, however, have been relatively stronger.
Several balancing forces have been at work in currency markets: Middle East tensions, oil prices, central-bank expectations and incoming economic data from the US, UK and euro region. The US dollar was supported by resilient US growth and expectations of higher yields. However, it was capped at times when geopolitical risks appeared to ease and safe-haven demand faded.
Put simply, FX markets in June were pricing policy divergence rather than a single global trend. The dollar stayed relatively firm, while moves in the euro and sterling were driven more by local inflation and rate expectations than by broad market sentiment.
The main feature of markets in June was technology-sector volatility. Early-month gains gave way to a broad sell-off later in the month.
The main sources of pressure were concerns about AI valuations, expensive capital spending by major technology firms and shifting interest-rate expectations. Geopolitical uncertainty also added to the risk-off mood, making already-rich technology valuations more vulnerable. The pattern looks less like a steady downtrend and more like an aggressive rerating of a crowded trade, especially among mega-cap chip stocks.
Overall, we still recommend staying invested while remaining mindful of geopolitical volatility and uncertainty over monetary policy. We continue to see opportunities in US large and small caps, which may benefit from quality characteristics, technology exposure and broader market leadership amid continued economic resilience.
We also expect geographical asset allocations to broaden. Asia and emerging markets therefore look relatively attractive, particularly if the US and Iran agree on a roadmap for a final deal and a plan to end military operations in Lebanon.
