Jenson Holmes, from Titan Wealth, offers this week’s round-up of global markets
APART from the record temperatures, the main development in the UK last week was Prime Minister Keir Starmer’s decision to step down.
He will remain in place as caretaker Prime Minister until a new Labour leader is appointed, with an announcement expected on 17 July. Starmer has indicated he intends to ensure a smooth and orderly handover and has already met Andy Burnham, currently the sole declared candidate and frontrunner, to begin transition discussions.
The leadership change follows a period of weak polling, underwhelming local election results and growing internal pressure within the Labour Party. From a market perspective, the reaction so far has been relatively calm. Investors appear comfortable that the transition is unlikely to result in a significant shift in fiscal policy, particularly as Chancellor Rachel Reeves has publicly supported Burnham and his commitment to maintaining fiscal discipline.
In the near term, markets will be watching for any signs of policy change, particularly around taxation, infrastructure investment, energy policy and defence spending, while continuing to prioritise economic stability and rebuilding public support.
In the US, inflation remains higher than the Federal Reserve would like. Its preferred measure, the core Personal Consumption Expenditure index (which excludes food and energy), rose by 0.3% over the month and 3.4% over the year, the highest since October 2023. The broader PCE measure also increased by 4.1% annually.
Despite persistent inflationary pressures, economic activity continues to show resilience, with consumer spending exceeding expectations and increasing by 0.7% over the month. First-quarter GDP growth was revised upwards to an annualised rate of 2.1%, highlighting steady underlying momentum. More broadly, global growth remains resilient and is expected to strengthen over the next year.
Fed chairman Kevin Warsh has vowed to tackle inflation as he attempts to reassure markets of the Fed’s independence. Warsh has, somewhat unexpectedly, delivered a hawkish tone since replacing Jerome Powell last month, reiterating that the Fed will seek to deliver price stability and return inflation to its 2% target.
Elsewhere, oil prices moved lower over the week. Following the ceasefire in the Iran war and the subsequent re-opening of the Strait of Hormuz, Brent crude fell to around $73 per barrel, below levels seen prior to the conflict. This reflects a short-term surge in supply, as previously disrupted Gulf exports return to the market. While this has pushed prices lower in the short term, the longer-term outlook is more balanced.
Lower energy costs are generally positive for the global economy and financial markets. They help to ease inflationary pressures, reduce the likelihood of further interest rate rises and lower costs for companies and consumers.
Market performance over the week was mixed. Equity markets ended lower, driven by weakness in technology stocks and chipmakers, amid concerns over whether vast investments in AI will justify current valuations. Government bonds performed better, with yields falling as lower energy prices and supporting economic data helped ease inflation concerns.
