Executive Summary
• Markets became noticeably calmer during June despite continued geopolitical uncertainty.
• Oil prices fell significantly from their spring highs as hopes of a lasting ceasefire between the United States and Iran improved sentiment.
• Prime Minister Keir Starmer announced his resignation, but UK financial markets reacted with surprising resilience.
• Central banks remain cautious as lower energy prices reduce inflationary pressure but economic growth continues to weaken.
• Valuation differences between the U.S. and international markets continue to favour the UK, Europe and parts of Asia.
Iran War: Markets Begin Looking Beyond the Headlines
After dominating financial markets throughout the spring, the Iran conflict entered a different phase during June. While military activity continued and shipping through the Strait of Hormuz remained below normal levels, investors became increasingly focused on whether the conflict would continue to disrupt global energy supplies over the longer term.
Progress towards a 60-day ceasefire framework helped improve market sentiment, even though no comprehensive peace agreement has yet been reached. Oil prices responded by falling sharply as traders began pricing in the possibility that supply routes would gradually reopen. Brent crude, which had traded well above $100 per barrel during the height of the crisis, fell back towards more normal levels by the end of the month, currently at $71.88 at time of writing.
However, it would be premature to conclude that the energy crisis has ended. Tanker traffic through the Strait of Hormuz remains well below pre-war levels, insurance costs remain elevated and many companies continue to rely on alternative, more expensive shipping routes. The risk premium built into energy markets has reduced, but it has not disappeared.
The biggest lesson from recent months has been how quickly markets adapt. Investors initially reacted to every military development, but attention has gradually shifted back towards economic fundamentals. Unless the conflict escalates again, markets appear increasingly willing to look through the geopolitical noise.
UK Politics: Stability Matters More Than Leadership
One of the biggest domestic stories this month was Prime Minister Keir Starmer’s announcement that he intends to resign, triggering a Labour leadership contest. Under normal circumstances, political uncertainty might be expected to unsettle investors. Instead, the reaction was remarkably muted. Sterling moved only modestly, gilt yields edged lower and both the FTSE 100 and FTSE 250 remained broadly stable.
The market’s calm response reflects an important point: investors are generally more concerned with economic policy than political personalities. At present, there is little
expectation that the UK’s fiscal framework or monetary policy will change dramatically regardless of who succeeds Starmer.
That said, leadership contests inevitably create uncertainty. Markets will be watching closely for any indication that the next Prime Minister intends to depart significantly from existing fiscal rules, particularly given the UK’s already stretched public finances.
For now, investors appear comfortable treating the change in leadership as a political event rather than an economic one.
Global Equities Context
Global equity markets delivered a more constructive month after the heightened volatility of the spring. Falling oil prices supported investor confidence, while expectations that central banks remain on a gradual path towards lower interest rates provided an additional tailwind.
The United States continued to underperform many international markets. Although technology companies remain dominant globally, investors have become increasingly selective, with high valuations making earnings disappointments more costly.
Outside the U.S., the rotation towards better-value markets continued. UK and European equities remained well supported, while Japan continued to benefit from corporate governance reforms and India maintained strong long-term growth momentum.
Overall, market leadership continues to broaden beyond the handful of mega-cap U.S. technology companies that have dominated returns over recent years.
Central Banks: Cautious Optimism Returns
The fall in energy prices has eased some of the inflation concerns that emerged earlier this year. While inflation remains above target in many economies, the risk of a renewed energy-driven inflation shock has diminished.
In the United States, investors continue to expect gradual interest-rate reductions later this year, although policymakers remain data dependent.
In the UK, the Bank of England maintained the base rate at 3.75%. With inflation continuing to moderate but economic growth remaining weak, the Bank finds itself balancing the need to support the economy against the risk of easing policy too quickly.
For investors, the overall direction of travel still appears to be towards lower interest rates, even if the journey proves slower than originally anticipated.
UK: Weak Economy, Strong Market
The UK economy continues to struggle with weak productivity, subdued consumer spending and cautious business investment. Recent GDP data suggests growth remains fragile, with higher energy costs earlier in the year weighing on activity.
Despite this, the FTSE 100 continues to demonstrate resilience. Many of its largest constituents generate the majority of their revenues overseas, meaning company earnings remain far more closely linked to global economic conditions than to domestic growth.
Combined with valuations that remain significantly below those seen in the United States, we continue to believe UK equities offer attractive long-term value.
Other Viewpoints
Cash
Cash continues to provide attractive nominal returns, although expectations remain that interest rates will gradually fall over the coming year. Investors holding significant cash balances should consider the reinvestment risk that accompanies lower rates.
Fixed Interest
Bond markets enjoyed a more stable month as inflation concerns eased alongside falling oil prices. High-quality bonds continue to offer attractive yields together with renewed diversification benefits following several challenging years.
Alternatives
Gold gave back a small portion of its recent gains as geopolitical concerns eased slightly, although it remains an important hedge against uncertainty. Commodity markets remain well supported despite the fall in oil prices, particularly those linked to long-term infrastructure, defence and artificial intelligence investment.
UK Shares
UK equities continue to benefit from attractive valuations and global earnings exposure. We remain constructive on the market despite the relatively weak domestic economy.
US Shares
While U.S. companies continue to lead in innovation, valuations remain demanding. The concentration of market returns within a relatively small number of companies continues to represent a significant risk should earnings expectations disappoint.
European Shares
European equities continue to trade at attractive valuations. Lower energy prices have provided some relief to manufacturers, while improving investor confidence has supported the region.
Asian Shares
Japan remains one of our preferred developed markets, supported by corporate reform and improving shareholder returns. India continues to offer one of the strongest structural growth stories globally.
Emerging Markets
Emerging markets delivered mixed returns during June. Commodity exporters benefited from higher prices earlier in the quarter, while improving global risk sentiment supported capital flows towards several Asian economies.
Highlights & Risks
Highlights
• Oil prices have fallen significantly from their spring highs.
• UK political uncertainty has had only a limited impact on financial markets.
• UK, European and Asian equities continue to offer attractive relative value.
• Bond markets are becoming increasingly attractive as inflation moderates.
Risks
• The Iran ceasefire remains fragile and could easily break down.
• Slower global growth may weigh on corporate earnings during the second half of the year.
• High U.S. equity valuations leave little room for disappointment.
• Political developments in the UK could become more significant if fiscal policy changes materially.