Just a few weeks ago, markets were celebrating what appeared to be a lasting ceasefire between the United States and Iran. That optimism has been short-lived. Renewed attacks on commercial shipping in the Strait of Hormuz, followed by fresh US military strikes on Iranian targets, have reignited tensions and reminded investors how quickly geopolitical risks can return to the forefront.
President Trump declared the ceasefire agreement effectively “over” during the NATO summit in Ankara, prompting an immediate reaction across financial markets. Brent crude oil surged above $78 per barrel, while equity markets retreated as investors sought safer assets amid concerns that renewed disruption to global energy supplies could once again feed through into inflation. The reaction serves as a reminder that markets had become increasingly comfortable with the view that the conflict was moving towards resolution.
Government bond markets also reflected growing caution. US Treasury yields initially rose on inflation concerns linked to higher oil prices before stabilising, while investors continued to assess the implications for central bank policy. The renewed geopolitical uncertainty arrives at an awkward time for policymakers, with inflation already proving more persistent than many had hoped.
Closer to home, Andy Burnham moved significantly closer to becoming the United Kingdom’s next Prime Minister. On the first day of Labour’s nomination process, Burnham secured the backing of 322 Labour MPs, leaving him effectively unchallenged in the race to replace Sir Keir Starmer. Unless a surprise challenger emerges before nominations close, Burnham is expected to be formally confirmed as Labour leader next week and become Prime Minister shortly afterwards.
Burnham’s rise has been remarkably swift. Only weeks ago, he returned to Westminster following his by-election victory in Makerfield. His platform centres on devolving power away from London, strengthening regional economies and delivering what he describes as “good growth in every postcode”. Investors will be watching closely for further details on tax policy, public spending and infrastructure commitments once the transition of power is complete.
Meanwhile, attention also turned towards China, where June inflation data highlighted the continuing imbalance within the world’s second-largest economy. Consumer prices rose by 1.0% year-on-year, down from 1.2% in May and slightly below expectations. While inflation remains positive, the moderation suggests domestic demand continues to recover only gradually. Food prices remained weak, reflecting cautious household spending and ongoing challenges within the property sector.
In contrast, producer prices rose 4.1% year-on-year, the strongest increase since 2022. Higher commodity costs, supply chain disruptions linked to the Middle East conflict and strong demand for AI-related technology continue to support manufacturing activity. The widening gap between consumer and factory-gate inflation reinforces the two-speed nature of China’s economy, where exports and advanced manufacturing remain robust while domestic consumption continues to lag.
Market performance this week largely reflected these competing themes. Energy stocks outperformed as oil prices rallied following the renewed tensions in the Middle East, while broader equity markets struggled. The FTSE 100 fell sharply on Wednesday as investors digested the implications of higher energy prices and a potential resurgence in inflationary pressures. US markets also moved lower, with the S&P 500 and Nasdaq retreating as risk appetite weakened.
Despite the volatility, it is worth remembering that markets have repeatedly demonstrated their ability to look through geopolitical events once the immediate uncertainty passes. The key question for investors remains whether higher oil prices prove temporary or become sufficiently persistent to influence inflation expectations and central bank policy. For now, maintaining a disciplined and diversified approach remains the most effective way of navigating an environment where political and economic headlines can change rapidly.
Andy Triggs, Head of Investments
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