The week that was …
Economic round-up
Surprise fall in Eurozone inflation
Eurozone inflation fell more than expected in June – to 2.8%, a significant drop from May’s 3.2% figure. Economists polled by Reuters had forecast a rise of 3%. Last month, the European Central Bank raised interest rates by a quarter point to 2.25%, its first increase in borrowing costs since 2023. Read more from the FT here
UK services sector misses World Cup boost
World Cup spending was not enough to drag the UK’s services sector towards growth last month. Instead, it recorded its fastest rate of decline in three-and-a-half years, showing a reading of 48.8 in June, down from 49.3 in May. The pace of job losses across the sector also picked up, falling at the sharpest rate since February. Read more from City AM here
Lower oil price shores up US consumer confidence
The Conference Board’s Consumer Confidence Index in the US edged up to 91.2 in June – from a downwardly revised 90.6 in May – as lower oil prices lifted inflation fears. The Present Situation Index, which is based on consumers’ assessment of current business and labour market conditions, meanwhile fell 3.0 points to 116.4. For its part, the Expectations Index, which is based on consumers’ short-term outlook for income, business and labour market conditions, rose 3.0 points to 74.4. Read more from the Conference Board here
US jobs numbers disappoint in June …
US non-farm payrolls for June came in at 57,000 – versus consensus expectations of 110,000 – and, while the unemployment rate fell to 4.2%, the participation rate also dropped. A drop of 55,000 in employment for accommodation and food services is a surprise, given the World Cup. Read more from Trading View here
… while manufacturing activity slips
Having surged in May, US manufacturing activity slowed last month. The Institute for Supply Management said its manufacturing purchasing managers index slipped to 53.3 in June from 54.0 the month before. Economists polled by Reuters had forecast the index would be unchanged at 54.0. Read more from Reuters here
Services activity declines in China
Growth in China’s services activity slowed in June, with the RatingDog China General Services Purchasing Managers’ Index falling to 54.1, down from 54.4 the previous month. That said, overseas demand rose at the fastest rate in 20 months. Read more from Reuters here
Markets round-up
Oil and shipping flows resume in Strait of Hormuz
The rate of traffic flowing through the Strait of Hormuz is gradually picking up, pushing oil prices lower. Brent crude held steady at near $72 (£54) per barrel at the end of last week – close to the level seen before the war in the Middle East broke out in late February. Saudi Arabia’s crude exports have also rebounded to near 90% of pre-war levels. Read more from City AM here
Financial stocks boost Footsie
The FTSE 100 index ended higher on Friday, supported by financials, while higher gold prices lifted precious metals miners. The FTSE 100 ended the week at 10,653, while the FTSE 250 was up 0.5%. Read more from Reuters here
Bailey dismisses prospect of UK rate cut
Andrew Bailey has said cutting interest rates is “off the table at the moment”. Speaking on a panel at the European Central Bank’s annual conference in Portugal, the Bank of England governor argued inflationary pressures following the war in the Middle East had changed the outlook for monetary policy. Read more from City AM here
‘Earnings bubble’ concerns on Wall Street
Wall Street’s expectations for company profit growth are rising at the fastest pace since the post-pandemic rebound, fuelling concern of an “earnings bubble”. According to Bloomberg data, analysts are now forecasting a 25% increase in S&P 500 company earnings for the coming year, boosted by a resilient US economy and the AI boom. Read more from the FT here
“Almost every other global market now looks better-value than the US – and, in many cases, investors do not have to sacrifice growth to benefit from this.
Selected equity and bond markets: 26/06/26 to 03/07/26
| Market | 26/06/26 (Close) |
03/07/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5643 | 5735 | +1.6% |
| S&P500 | 7354 | 7483 | +1.7% |
| MSCI World | 4754 | 4842 | +1.9% |
| CNBC Magnificent Seven | 399 | 420 | +5.2% |
| US 10-year treasury (yield) | 4.37% | 4.49% | |
| UK 10-year gilt (yield) | 4.74% | 4.79% |
Investment round-up
Aberdeen completes takeover of MFS funds
Aberdeen Investments has completed its takeover of Boston-based MFS Investment Management’s closed-end fund range. Approximately £1.5bn of funds are to be consolidated through a series of mergers.
Global financial services M&A on the rise
The number of mergers and acquisitions in global financial services accelerated in the first half of 2026, with reported deals up 3% year-on-year, according to data from EY. Banks, insurers and asset managers disclosed 1,137 deals in the first six months of 2026, compared with 1,101 over the same period in 2025.
May net fund sales hit £2.5bn
Net retail sales recorded inflows of £2.5bn in May – the highest figure over the last year and the seventh consecutive month of inflows, according to the Investment Association. Fixed income funds rebounded strongly, with inflows rising to £1.5bn in May, from £465m in April, but equity funds continued to see outflows – £1.5bn, compared with £676m in April.
Wesleyan expands with-profits range
Financial services mutual Wesleyan has launched two with-profits vehicles – the With Profits Cautious Fund and the With Profits Adventurous Fund. The expanded range gives advisers three options with different risk profiles when incorporating smoothed funds into diversified portfolios.
Canaccord Wealth launches MPS for US expats
Canaccord Wealth has launched a specialist managed portfolio service for US citizens living in the UK. Built by the group’s specialist US expat team, the suite of five model portfolios has been designed to manage the challenges of cross-border investing for those who are subject to both UK and US tax rules.
UK pensioners regret tax-free cash withdrawals
Three in five retirees who withdrew tax-free cash from their pension ahead of the 2025 Budget now regret the decision, according to research from Quilter. In total, 57% of the 5,000 UK retirees surveyed withdrew tax-free cash ahead of the Budget, with 41% doing so in response to potential rule changes.
Polar’s tech and AI strategies boost AUM
Polar Capital saw assets under management (AUM) increase by 43% in the 12 months to March 2026, led by its global technology, artificial intelligence and smart energy strategies. The trading update showed Polar’s AUM increased from £21.4bn in March 2025 to £30.6bn as of 31 March 2026.
… and the week that will be
US rally shows signs of broadening
Tech companies – and especially semiconductor stocks – may have propelled gains on Wall Street over the past few months but recent weeks have seen significant volatility in this part of the market. Other sectors, such as healthcare, industrial and financial stocks, have performed well over the past month, spurring investor hopes of a healthy rotation that could lead market gains to broaden. Read more from Reuters here
Military spending tops Nato summit agenda
A Nato summit begins in Ankara on Tuesday. Key issues at the two-day meeting will be how members plan to increase military spending and strengthen their defence industries, both of which are linked to support for Ukraine and holding back further Russian aggression in Europe. Read more from the FT here
The week in numbers
Federal Reserve minutes: The Federal Reserve left US interest rates unchanged last month and the publication of the minutes of its June meeting this week should provide some insight into the thinking of the central bank under new chair Kevin Warsh.
UK construction sector: Consensus forecasts have the purchasing managers index (PMI) for the UK construction sector rising to 45 in June – up from 38.2 in May.
US services sentiment: Consensus expectations are for the US ISM services PMI to slip to 54 in June – down from 54.5 in May.
China inflation: Consensus forecasts have prices in China rising 1.2% year-on-year in June – in line with the May number – and 0.3% month-on-month, which would be an acceleration from May’s 0.1% fall.
In focus: Self-evident truths?
250 years ago last Saturday, the US declared independence from Great Britain. Today, UK investors need to be thinking hard about whether to return the compliment. While gains have undeniably been strong, another self-evident truth is that the US has become an increasingly dominant part of investor portfolios. At the same time, the nature of the country’s markets is changing, with shifting risks, increasing concentration and greater volatility.
The previously dominant ‘Magnificent Seven’ stocks are faltering. Despite a 5% rally over the last week, the CNBC Mag7 index is still 1% down over the year to date, leaving it 10 percentage points behind the broader S&P 500 index. “The prior five to 10 years were led by those Mag Seven stocks,” says JOHCM Global Opportunities co-manager Robert Lancastle. “They were great companies, they grew well and they are still growing well – but they are having to invest hard to sustain that growth.”
The nature of these companies has changed too. Once reassuringly cash-generative and capital-light, they are now spending billions to participate in the AI revolution. This may ultimately prove to be a wise investment, of course, but investors are reappraising their valuations in the meantime.
As a result, they are being replaced by a new generation of market winners – the semiconductor groups, such as AMD, Broadcom and Micron. Yet, while AI is undoubtedly generating astonishing chip demand, such demand is usually cyclical.
If anyone tells you the chip industry is not going to be cyclical and it is going to be different this time, don’t invest with them. It could be a bit different – or stronger for longer – but it will still be cyclical.”
As Richard Clode, portfolio manager, global technology at Janus Henderson Investors, says: “If anyone tells you the chip industry is not going to be cyclical and it is going to be different this time, don’t invest with them. It could be a bit different – or stronger for longer – but it will still be cyclical. There is no way when you sign a five-year memory contract with your customer that you can jam five years of chips at them if AI demand collapses.”
Then there is the influence of the incoming IPOs. SpaceX, ChatGPT and Anthropic are all likely to disrupt and dominate the major US indices. “We are certainly not offering any recommendation for or against SpaceX or its IPO,” observes Alastair Irvine, investment director on the Jupiter Merlin fund of funds team, diplomatically. “There are arguments on both sides.
“However, the estimated 100% bottom-to-top valuation gap reflects the widely differing opinions of everything in the investment melting pot: corporate governance, key-man risk, the bet on the mercurial Musk’s genius – but also how a non-executive board manages both the behaviour of such a maverick and the inherent complications arising from his business conflicts of interest.
“It is a judgement call on the quality of the management team implementing the strategic vision; an understanding of the marketplace and the rapidly changing technology; and, critically, not only whether the management can turn aspiration into reality but also make acceptable financial returns from doing so.”
The US market may have long been focused on technology and concentrated in a handful of names – but at least Amazon, Meta or Apple had a range of business lines. This is being replaced by an extremely narrow focus on AI.
As Clode points out, while demand is strong, there are still risks to wider AI adoption – not least, regulation. “We are seeing models being released and stopped, with policymakers having a look at them and seeing systemic risk,” he says. “That will be a challenge as these models become more capable and the risks become greater. You could get quasi-nationalisation – that is a big regulatory risk.”
On the other side of the equation, almost every other global market now looks better-value than the US – and, in many cases, investors do not have to sacrifice growth to benefit from this. According to JOHCM’s Lancastle, there are a number of forces acting on the global economy that are creating pockets of growth.
As examples, he picks out the reorganisation of supply chains in the wake of Covid and the crisis in Ukraine, the energy fragilities exposed by geopolitical unrest in Ukraine and the Middle East and the erratic policymaking from the US, notably its ‘Liberation Day’ tariffs, and adds: “We believe there are markets such as Germany, Japan, among other parts of the world, that now offer growth.”
It is not as black-and-white as ‘the US or not the US’ – it is about sifting through the markets selectively and finding businesses that are underappreciated.”
Nevertheless, opportunities do remain in the US, with Lancastle arguing investors’ narrow focus on a handful of stocks has left other parts of the market neglected. “You can find great underappreciated growth in largecap US,” he continues.
“This ‘Mag 7’ thing has gone on so long that people have taken capital out of other parts of the market and you can find some great leaders in energy infrastructure plays – LNG terminals or specialist industrials – on very reasonable multiples. It is not as black-and-white as ‘the US or not the US’ – it is about sifting through the markets selectively and finding businesses that are underappreciated.”
As discussed in this space last week, there is also a very solid argument for a revival in small and midcap companies globally and, at the start of this year, US ‘SMID caps’ looked to have some wind in their sails. Earnings were improving, interest rates looked set to fall and investors were in the mood to diversify. That mood firmly shifted in response to the war in Iran and the ensuing inflationary threat but may flip back now the risks are ebbing.
The S&P Small Cap 600, which screens out less liquid, more unprofitable smaller companies, is up 30% over the year to date – around 20 percentage points ahead of the S&P 500. Most of these gains have come since April and suggest the tide may be turning on US smaller companies – even if interest rate cuts are not back on the table.
The US market is changing and index investors are clearly obtaining a different type of exposure today than they were a year ago. That said, one final truth we hold to be self-evident is the US remains the largest and deepest capital market in the world – and it still holds plenty of opportunities for investors willing to look beyond a handful of largecap companies.
Read more on this from the FT here and from Jupiter here
In focus: Sliding yen
Last week, the yen hit a 40-year low against the US dollar. The Japanese authorities had already spent ¥11.7tn (£4.6bn) in April and May to support the currency but there are now fears they will be forced into a more aggressive intervention that will have wider repercussions for global financial markets.
The underlying issues are manifold – not least the fact the dollar has strengthened as markets have started to price in a stronger likelihood of Federal Reserve rate hikes. US inflation remains well above target, the economy continues to grow and the labour market remains robust. These expectations may have been tempered slightly by weaker jobs growth in June but the Fed’s latest quarterly projections show nine of 19 policymakers anticipate a rate hike by the end of the year.
There are also problems on the Japanese side. For one thing, the Bank of Japan has raised interest rates to 1%. That is a 30-year high but it does little to address the gap with the US, where the Fed funds rate currently sits at 3.5% to 3.75%.
Does it matter? Well, it is certainly a problem for Japan, which imports much of its food and energy. A weaker currency will make those imports more expensive and it also increases Japan’s fragility at a time when geopolitical tensions are running high, with unpredictable impacts for individual countries.
Yet it may also prove a problem for global markets if the Japanese authorities start to sell down US dollar assets or US treasuries to support its currency. This could create some pressure in the treasury market, pushing yields higher. This is likely to be at too low a level to create a significant threat but it would surely be another worry for financial markets at the margin.
It may also dent the popular ‘carry trade’, which involves borrowing in yen to invest in US stocks. If the yen starts to rise, it may force traders to unwind these loans. Again, this could create some structural pressures in the US market.
According to Tina Fong, an economist and strategist at Schroders, the yen has not yet responded to interest rate normalisation and may start to strengthen from here. “The Bank of Japan is gradually raising interest rates after years of ultra-low and negative real interest rates, leading to a meaningful narrowing in the US-Japan rate differential,” she explains.
“As Japanese yields rise and rate differentials narrow, the attractiveness of investing abroad begins to fade. Hedging costs increase, FX-adjusted returns on foreign assets fall and some capital may start to be repatriated. A slowdown in these outflows should ultimately provide structural support for the yen.”
Yen weakness remains an area of fragility in global financial markets and, as such, is something for investors to monitor. If the Japanese authorities choose to intervene, there may be repercussions for the US bond and equity markets alike.
