Markets spent the second week of June navigating a more challenging environment as rising energy prices, persistent inflation pressures and elevated bond yields complicated the outlook for monetary policy. While economic growth remained broadly resilient, investors became increasingly focused on whether inflation could remain higher for longer, particularly as geopolitical tensions in the Middle East continued supporting energy prices. As a result, bond markets, currencies and sector performance were largely driven by shifting interest-rate expectations rather than growth optimism alone.
Markets began June on relatively stable footing as easing geopolitical tensions and softer oil prices continued supporting sentiment across global markets. However, the mood shifted sharply towards the end of the week after stronger-than-expected US labour-market data prompted investors to reassess expectations for Federal Reserve policy. Rising Treasury yields, a stronger US dollar and renewed concerns around higher-for-longer interest rates weighed on risk assets, particularly growth-oriented sectors that had led much of the recent rally.
Markets finished May on a strong footing as easing geopolitical tensions, falling oil prices and continued confidence in corporate earnings helped support risk sentiment across global asset classes. While inflation remained elevated and US growth data softened, investors largely looked through the macro headwinds. Instead, attention remained firmly focused on resilient earnings, artificial intelligence investment and signs that tensions surrounding the Strait of Hormuz may be easing following progress in US-Iran negotiations.
Markets pushed further into record territory last week before momentum finally began to show signs of strain as rising bond yields, renewed inflation concerns and geopolitical uncertainty triggered a sharp late-week reversal across risk assets. The S&P 500, Nasdaq and Dow Jones Industrial Average all climbed to fresh all-time highs during the week, supported by resilient corporate earnings, continued enthusiasm surrounding artificial intelligence investment and generally stronger-than-expected US economic data.
Markets moved into a more cautious phase last week as persistent inflation, rising sovereign yields and renewed energy volatility challenged the softer “goldilocks” narrative that had supported risk appetite through April and early May. While economic activity remained relatively resilient across major economies, stronger-than-expected US inflation data and surging oil prices forced investors to reassess the likelihood of near-term policy easing. The result was a broad repricing across bonds, currencies and equity sectors, with markets increasingly focused on inflation persistence rather than growth optimism alone.
