It seems the end may be near, not of the world, but of the US–Iran conflict, the effects of which have rippled across the globe. News of a breakthrough first emerged from the Pakistani delegation, before Donald Trump announced via his Truth Social platform that a deal had been reached. However, markets remained cautious and waited for Iran to confirm the development. The interim agreement reportedly includes an end to the US blockade of Iran and the reopening of the Strait of Hormuz.
A formal 14-point framework has been agreed between the two countries. The key elements of the plan include an immediate and permanent ceasefire, alongside a halt to Israel’s attacks on Lebanon. The agreement also provides for the reopening of the Strait of Hormuz with no toll imposed by Iran, the release of frozen Iranian assets and a commitment from Iran to cease the development of any nuclear weapons. Following the anticipated signing of the deal by both sides, oil markets have reacted sharply, with Brent crude falling 12% over the week to $76.00.
The impact of the conflict has been widespread and continues to be reflected in economic data. US retail sales for May rose by 0.9%, while the previous month’s figure was revised down to 0.4%. Receipts at gasoline stations remained the largest contributor, increasing by 3.4%, with motor vehicle sales also rising by 1.2%. The K shaped nature of the economy remains evident, as spending continues to be driven primarily by higher income consumers, while lower income households feel the greatest pressure from rising fuel costs. As tax refunds associated with President Trump’s One Big Beautiful Bill diminish, lower income households are likely to rely more heavily on credit to meet their expenses.
The US Federal Reserve met on Wednesday and held interest rates steady at 3.75%. This meeting marked the first under Governor Kevin Warsh, who indicated that reforms would be introduced at the central bank. The most significant change was his decision to refrain from providing forward guidance on the future path of rates, instead noting that “the good news is we will be meeting in six weeks”. This approach is intended to ensure that decisions are made on a meeting by meeting basis, grounded in the latest economic data, while also encouraging markets to focus less on decoding Fed commentary. Updated projections suggest that inflation will slow sharply next year, reducing the likelihood of President Trump securing the looser monetary policy he repeatedly called for under Warsh’s predecessor, Jerome Powell.
In the UK, CPI held steady at 2.8% for May. Markets had expected a rise to 3%, with the release coming ahead of the Bank of England’s meeting on Thursday and likely supporting the decision to hold interest rates unchanged. Lower food prices helped offset continued increases in airline fares and petrol costs. Core inflation, which excludes food and energy, edged higher from 2.5% to 2.6%.
The Bank of England did indeed hold interest rates at 3.75%, although two of the nine policymakers voted for a rate increase. Policymaker Catherine Greene joined Chief Economist Huw Pill in calling for a 25bps (0.25%) rate hike, citing the need to mitigate the risk of elevated energy prices feeding into broader inflation. Governor Andrew Bailey acknowledged that inflation remains elevated at 2.8% but indicated a willingness to tolerate this in the short term, while taking encouragement from falling oil prices following the easing of the US–Iran conflict. Markets continue to price in a 25bps (0.25%) rate increase by the end of the year.
On Thursday, Andy Burnham secured a decisive victory in the Makerfield by-election, bolstering his campaign to challenge Prime Minister Starmer. Burnham won a majority of 9,231 votes for the Labour Party over Reform UK and signalled his ambitions clearly, stating that this was the “final chance for change”. The result means Burnham will take his seat in Westminster next week, where he has already set out his position with a commitment to abide by the government’s fiscal rules. While Labour has not experienced a formal leadership revolt, previous prime ministers have stepped aside in the face of sustained internal pressure, and there is growing speculation that further ministerial resignations could follow in the coming week. In response, Starmer stated this morning that, should a leadership contest arise, he intends to stand and will not step aside.
The Bank of Japan also met this week and, unlike its peers, opted not to pause, instead raising interest rates by 25bps (0.25%) to 1%. This marked its first-rate hike of the year and brought rates to their highest level in 31 years, as policymakers continue the process of policy normalisation. Governor Ueda was absent due to illness, but Deputy Governor Uchida indicated that the Bank would continue to raise rates if inflation persists. There were also indications that price pressures are feeding through into wage growth. Japanese equities reacted positively, with the Nikkei index rallying to a new record high and gaining 6% over the week.
While progress between the US and Iran is encouraging, renewed tensions in Lebanon this morning underline the still‑fragile and evolving nature of geopolitical risks. In this environment, maintaining a disciplined and diversified approach to portfolio construction remains essential. Ensuring exposure across a range of asset classes, regions and sources of return can help manage volatility and reduce reliance on any single outcome, supporting portfolio resilience as conditions continue to evolve.
Nathan Amaning, Investment Analyst
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.