A Fragile Peace and a Hawkish Turn
June was shaped by two opposing currents: a de-escalation in the Middle East that pulled oil back toward pre-war levels, and a synchronised hawkish shift from the major central banks that pushed rate-cut expectations further out. Equities held near record levels but paused as the year’s narrow, AI-led leadership was tested. As we move into July, some of the uncertainty that defined the second quarter has begun to clear, but the picture remains unsettled. Here is our read on what happened and what to watch over the coming weeks.
Equities: A Pause After a Record Quarter
US equities stepped back modestly in June after an exceptional run. The S&P 500 slipped around 1% on the month, snapping a two-month winning streak, as investors questioned whether the year’s AI-led rally had moved ahead of fundamentals. Even so, the S&P 500 and Nasdaq closed out their strongest quarter since 2020, and a semiconductor index tracked its strongest quarterly gain on record. Leadership stayed narrow: a rotation into financials, healthcare and industrials lifted the Dow around 2.5% for the month, while several mega-cap, AI-exposed names came under pressure as investors scrutinised returns on heavy infrastructure spending.
Heading into July, the key question is whether earnings can support current valuations as the next reporting season approaches. Concentration remains a defining feature of the market, and any disappointment among the largest AI-exposed names could test index support, as June demonstrated. The rotation toward more defensive and value-oriented sectors may continue while investors weigh how much of the AI spending cycle is already reflected in prices.
Geopolitics and Energy: A Ceasefire Under Strain
The US–Iran conflict remained the dominant macro variable, but its direction shifted in June. A ceasefire and a memorandum of understanding pulled Brent crude down from the levels above $110 a barrel reached during the conflict, and prices fell through the month as shipping through the Strait of Hormuz — through which roughly one-fifth of global oil and LNG trade passes — began to recover. By late June, Brent had settled near $72 and WTI closed below $70 for the first time since late February, the day before the war began. The relief proved uneven: renewed US and Iranian strikes over the final weekend of June, and a US assertion that Iran had violated the ceasefire, lifted prices modestly and underscored how fragile the arrangement remains.
For July, the durability of the ceasefire is one of the most important variables across asset classes. A credible, enforceable agreement and a sustained reopening of the strait would be disinflationary for energy and could ease pressure on central banks. A breakdown could reverse that quickly. With Hormuz flows reported back above 10 million barrels per day and exporters restoring volumes, the near-term supply picture has loosened, but Tehran’s continued insistence on administrative control of the strait, and the absence of enforcement detail, leave the situation open in either direction.
Central Banks: The Triple Week Resolves — In Different Directions
The most heavily anticipated event of the month delivered the divergence markets had been positioning for. The ECB raised its three key rates by 25 basis points on 11 June, taking the deposit rate to 2.25% in its first hike since 2023, and revised its inflation projections higher on the back of energy costs. The Federal Reserve held at 3.50%–3.75% on 17 June in Kevin Warsh’s first meeting as Chair; the decision was unanimous, the statement was shorter and stripped of prior easing-bias language, and the June FOMC projections shifted from an earlier expectation of a 2026 rate cut to a median expectation of one rate hike by year-end, with the median policymaker now seeing year-end rates at 3.8%.
For July, the direction of travel has become clearer even as the destination has not. Market expectations have shifted materially away from earlier expectations of rate cuts. The next round of decisions — the ECB on 23 July, the Fed on 29 July and the BoE on 30 July, may test whether June’s hawkish shift extends or pauses. Incoming inflation data on both sides of the Atlantic is likely to shape expectations heading in; May US CPI at 4.2% and eurozone inflation at 3.2% illustrate why the tightening bias has persisted.
Currency Markets: A Firmer Dollar
June’s central bank divergence reshaped currency markets in one clear way: the dollar firmed rather than faded. The US Dollar Index moved above 100 for the first time since May 2025 and finished the month near 101, supported by hotter US inflation and the Fed’s hawkish projections. EUR/USD eased to around 1.14 by month-end despite the ECB’s hike, as the dollar’s rate advantage outweighed the euro’s own more hawkish turn. GBP/USD traded around 1.32–1.34, held in a range by the gap between UK and eurozone policy rates, while GBP/JPY remained sensitive to Bank of Japan signals and broader risk sentiment.
For July, the three pairs relevant to the Fund’s strategy are likely to stay highly reactive to central bank guidance and to developments around the ceasefire. If the strait reopening holds and risk appetite recovers, defensive dollar flows could unwind and offer clearer directional setups. If inflation surprises or the ceasefire falters, intraday volatility across these pairs is likely to remain elevated, particularly around the late-July policy meetings.
Five Things to Watch in July
Ceasefire durability and the Strait of Hormuz. One of the most important variables across all asset classes. A sustained, enforceable reopening would be disinflationary for energy and supportive of a calmer rate outlook. A breakdown would do the reverse. The situation can move quickly in either direction.
ECB decision, 23 July. With the deposit rate at 2.25% after June’s hike, tone and guidance on whether further tightening is likely will matter as much as the decision itself.
Fed decision, 29 July. Kevin Warsh’s second meeting as Chair. With the dot plot no longer signalling a 2026 cut, markets will scrutinise the statement and press conference for any shift in the balance between sticky inflation and slowing growth.
BoE decision, 30 July. With two MPC members already voting to hike and services inflation elevated, the balance of the committee’s guidance will be closely watched for sterling.
US and eurozone inflation prints. This land ahead of the late-July central bank decisions and will shape expectations heading in. A hot print on either side of the Atlantic raises the probability of continued tightening and can increase volatility across GBP/USD and EUR/USD.
Overall, June marked a shift in the balance of risks rather than a resolution. The energy shock that drove the second quarter began to ease, yet the inflation it generated has left central banks leaning toward tightening even as growth signals soften. What June demonstrated is that geopolitical de-escalation and monetary caution can arrive together, and that relief on one front does not remove pressure on another.
July, with its second consecutive round of central bank decisions, a ceasefire still described as fragile, and an equity market re-examining its narrow leadership, is not a month for complacency. It is a month to watch the data closely, Markets may remain volatile while investors monitor incoming data.
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