Jenson Holmes from Titan Wealth offers this week’s round-up of global markets
INVESTORS have, in the last week, been balancing encouraging developments on global growth and trade with renewed concerns over inflation and higher borrowing costs.
At their Washington summit, President Trump and President Xi Jinping discussed matters ranging from AI and trade to the stalled war in Iran and confirmed that they would meet again at international summits in China and the US. The visit was marked more by pomp than substance, but the White House said on Friday that the two nations had agreed to establish a “bilateral communication channel” for AI incidents.
Sentiment was also buoyed by the announcement that the United States and China agreed to extend their trade truce until January 2027, reducing the immediate risk of a renewed escalation in tariffs between the world’s two largest economies.
However, this positive backdrop was offset by a continued rise in long-term government bond yields, with US Treasury 30-year borrowing costs reaching their highest level since 2004. Investors are increasingly recognising that interest rates and sovereign-bond yields may remain elevated for longer than previously expected due to the combination of robust economic activity, rising fiscal deficits and higher inflation.
Despite the sell-off in rates, optimism on growth sustained equities around the world last week. The S&P 500 finished higher and sits within touching distance of its record high, with technology once again leading the way.
In Asia, both Japanese and emerging market equities have continued to perform strongly. Japan has benefited from corporate governance reforms, improving shareholder returns and supportive domestic economic conditions.
Emerging markets have also generated attractive returns, supported by strengthening economic growth, rising domestic consumption, and increasing investment in digitalisation and infrastructure.
Geopolitical tensions remain a key focus for markets. The G7’s condemnation of continued Houthi attacks in the Red Sea and the UK’s decision to provide defensive military support to Saudi Arabia reinforced concerns around energy security and the resilience of global trade routes.
These developments helped support oil markets, with Brent crude remaining above $100 per barrel. Higher oil and energy prices remain an important consideration for central banks and financial markets since a sustained period of rising energy costs would add to inflationary pressures globally. In addition, this would also put downward pressure on global growth since higher oil prices act as a form of tax on consumers and businesses alike.
In the meantime, energy-related stocks benefited from stronger commodity prices and improved earnings expectations, and the sector is a good hedge against some of the global macro risks. Closer to home, consumer confidence improved for a third consecutive month, reflecting greater optimism around personal finances, employment prospects, and the broader economic outlook.
While challenges remain, especially around the cost of living, immigration, fragile growth and the housing market, the latest data suggests that economic conditions are proving more robust than many had anticipated earlier in the year. The upcoming budget will be a key event for UK markets, while the MPC will also be watching fiscal policy with interest at a time when it is under pressure from rising gilt yields and inflationary pressures.
