Markets: Quarterly review Q2-2026:

Most global markets had a volatile but positive quarter as commodity markets had generally stabilised by quarter-end after the ‘MOU’ ceasefire-framework was signed, thereby somewhat easing concerns for a regional conflict. Energy prices through the conflict were meaningfully restrained after China made a substantial reduction in its daily energy imports alongside major global economies drawing heavily from their SPRs; thereby collectively offsetting a good portion of the global supply shortfall. Energy prices trended downward once the MOU was completed. Asian markets (excl Japan) generally outperformed as investors sought growth-oriented equities amid value opportunities. Both commodity-dependent and domesticfocused economies were relatively subdued, particularly some emerging markets. Global Tech markets made gains on the back of AI optimism despite rising concerns over revenue models and US CapEx trajectories. Inflation expectations across all G7 economies remained a concern for investor sentiment which kept global bond markets relatively subdued.

US markets had a strong quarter where the S&P500 rally was driven in June much by risk-on sentiment focused across a narrow group of technology mega-caps on the back of AI optimism and CapEx expansion. Here, investor sentiment largely ignored inflation and debt trajectories; labour force data revisions; and broader economic uncertainties. Record results from multiple AI-related and semiconductor companies helped reinforce that enthusiastic narrative. It can reasonably be argued that aggregate market valuations are already beyond levels that prevailed around the Dot-Com bubble. The Fed kept rates unchanged despite rising inflationary trends and indicated that policy would not be too aggressive unless inflation accelerated. USD strengthened against most major currencies. Resilient corporate earnings helped support a broader upward market trajectory across US equities as the MOU pushed energy prices lower and eased supplychain disruption risks. US 2yr Treasury yields rose over the quarter whereas longer-dated bond yields fell marginally, supporting expectations that interest rates would remain higher-for-longer.

Eurozone equity markets had a positive Q2-26, much driven by tech-related optimism and financials on the back of robust earnings data. The energy sector suffered from the impact of supply and demand volatility due to the middle east conflict in tandem with ongoing supply restrictions for cheaper Russian energy. The ECB raised rates by 0.25% after EU inflation increased from 3.0% to 3.2% YoY in May, with expectations for inflation to remain elevated well into 2027. Growth expectations were revised downward again as Q1-26 GDP fell -0.2% while June PMI rose to 49.5 from 48.5 in May; indicating continued contraction.

UK markets generally had a positive quarter despite the energy sector declining on the back of the Gulf conflict. The BoE kept rates unchanged at 3.75% as inflation was steady at 2.8% YoY. The UK PM Keir Starmer announced his planned resignation after poor local election results in May. The new PM is expected to be appointed late July. Market reaction was largely tepid, indicating expectations that policy will be largely unchanged under the new PM. 10yr-Gilt yields pushed higher in April in recognition of the fiscal, political and inflationary risks facing the UK, particularly from higher energy prices.

Japanese equity markets outperformed for the quarter as investor sentiment recovered on the back of the US/Iran MOU and the subsequent decrease in energy prices which in turn relieved mounting pressure on the Japanese SPR. AI and Tech related sectors outperformed. The BoJ raised rates to 1.0% in June from 0.75%, providing positive momentum to the broader equity sectors while the Yen continued to weaken over the quarter thereby assisting its export-oriented economy.

Emerging markets performed well for Q2-26, led by South Korea and Taiwan AI-related and tech sectors as US and global demand remained strong despite the disruption risks to energy and chemical supply from the Gulf conflict and consequent market volatility. Egypt, Hungary, Poland, Mexico and Chile outperformed as oil prices fell after the MOU. India delivered a modestly positive performance for the quarter on the back of falling energy prices, despite its large IT service sector being at growing risk of displacement by AI. China underperformed amid mixed economic data. South Africa underperformed on the back of weaker commodity prices. Suadi Arabia, UAE, and Kuwait were negative for the quarter on the back of regional risks and disrupted exports. Brazil markets fell as investor sentiment soured after Lula gained a lead in polling for the up-coming elections, and their central bank lowered rates. Indonesia fell markedly on the back of policy uncertainty, capital outflows, weaker economic data, inflation risks; and a weakening currency that forced their Central Bank to raise rates twice through June in defence.

Global bond markets delivered a somewhat positive quarter despite the volatility. Generally, most central banks remained cautious with their rate-setting approach but alert to inflationary and macro-economic risks. Most bond market yields tracked energy market movements as the middle east conflict dominated investor attention, touching multi-year highs as the conflict intensified. Greece outperformed. Japan, US, UK, and Germany underperformed. The US Fed kept rates unchanged which in turn helped to settle most other bond markets. US and EU investment grade and corporates delivered positive performance.

Commodities generally declined over the quarter on the back of the disruption from the middle east conflict, particularly energy and precious metals. Despite its fragility the MOU did help stabilise markets and sentiment somewhat but shipping through the Strait of Hormuz remains well below pre-conflict volumes, especially for chemical product volumes. Cocoa, copper and zinc prices remain elevated, whereas agricultural commodities weakened.

Andy Blandford