GEOPOLITICAL SHOCKWAVES ALTER RISK SENTIMENT AS COMMODITIES SURGE
EQUITY MARKETS
Investor sentiment turned more cautious across international markets following a high-profile military operation targeting Iran’s nuclear infrastructure by the Israeli military. Investors responded by repositioning into traditional safe-haven assets, with crude oil recording a steep increase of nearly 7% on the news and gold edging higher amid renewed geopolitical anxiety. Equity markets faced broad-based declines, with major indices in the US and Europe retreating from recent highs. The S&P 500 dipped by approximately 1% on the news, reflecting heightened sensitivity to geopolitical developments. Meanwhile, the US dollar posted a modest recovery from recent lows, while government bond yields ticked upwards, suggesting a recalibration in interest rate expectations.
Over the past two weeks, European equities were on the backfoot, with the German DAX dropping by 2 per cent followed by Spain’s IBEX 35 with a drop of 1.7 per cent and Italy’s FTSE MIB dropping by around 1.6 per cent. On the other hand, tech-related indices outperformed with the Nasdaq composite returning a positive performance of 1.6 per cent and the S&P 500 index returned 1.2 per cent.
Market participants are closely monitoring diplomatic developments over the weekend as tensions in the Middle East stir concerns about regional stability and potential supply-side disruptions. Despite a notable rally in commodities, fixed income markets remain relatively measured, hinting at investor reluctance to fully price in escalation risk without further clarity. The timing of these events coincided with otherwise encouraging macroeconomic signals, including a lower-than-anticipated inflation print and signs of renewed dialogue between the United States and China. However, rising energy prices could reintroduce inflationary pressures, potentially complicating the outlook for central bank policy over the coming months.
Consumer confidence in the United States has shown a robust rebound, registering its sharpest monthly increase in over a year, according to data compiled by the University of Michigan. The upswing suggests a broad-based improvement in public sentiment, fuelled by easing inflation fears and a more optimistic view of short-term economic prospects. The headline confidence index climbed notably in June, surprising forecasters and signalling that households may be growing more comfortable with the direction of the economy. A key driver behind the shift appears to be a recalibration of inflation expectations, with consumers now anticipating a more modest pace of price growth over the next twelve months. Expectations for longer-term inflation also showed a slight moderation.
This positive shift comes at a time when uncertainty linked to recent trade policies and tariff announcements had cast a shadow over consumer attitudes. While confidence remains below pre-policy shock levels, the latest survey indicates that the public is gradually adjusting to new economic realities. Perceptions of personal financial wellbeing recorded their strongest monthly improvement in more than three years, reflecting increased optimism about income stability and purchasing power. Despite the encouraging headline figures, views on the broader business environment and major purchasing decisions remain somewhat cautious. Consumers are still wary of external risks, including trade disputes and policy unpredictability, which continue to weigh on their outlook.
In the corporate world, Adobe’s share price declined after its latest sales guidance failed to reassure investors sceptical of its position in the AI race. Despite reporting strong figures, concerns persist over its ability to fend off rising competition from newer, AI-centric rivals. Ford is grappling with disruptions to rare earth magnet supplies from China, which recently introduced a stricter export approval process. The shortage has already led to a temporary shutdown at its Chicago plant, with production now reliant on unpredictable, short-term deliveries. Visa and Mastercard shares declined after reports surfaced that major retailers such as Walmart and Amazon are considering the use of stablecoins to bypass traditional card transaction fees. The prospect of alternative payment systems raised concerns about long-term pressure on established network economics. Meta is reportedly in advanced discussions to commit a substantial investment into Scale AI, potentially valuing the data-labelling firm at over $10 billion. Meta’s potential investment in Scale AI would represent its largest external AI funding to date, as it intensifies efforts to establish its Llama models as a global benchmark. The deal would also deepen Meta’s presence in the defence and enterprise AI space, where Scale already holds major government contracts. Oracle shares soared to new highs following upbeat projections for its cloud business, driven by accelerating demand for artificial intelligence solutions. The firm expects a sharp jump in cloud infrastructure growth, positioning itself as a key player in AI hosting, even before its high-profile Stargate initiative fully launches. IBM has unveiled plans to develop a highly advanced quantum system capable of performing exponentially more operations than today’s machines by the end of the decade. The initiative, anchored by a series of next-generation processors, will culminate in the launch of its flagship 'Starling' quantum computer in 2029.
SECTOR PERFORMANCE
In healthcare, investors are approaching the US non-profit hospital market with growing caution as political shifts cast uncertainty on sector finances. Anticipated federal policy changes may reduce funding streams and increase operational strain, particularly among Medicaid-reliant institutions. Market spreads have widened notably, signalling heightened credit concerns. While some see risk, others are identifying selective opportunities among stronger operators. Volatility gripped transportation and aviation stocks at the midpoint of the month as geopolitical unrest in the Middle East sparked concerns over oil supply disruptions and weakened travel sentiment. Airlines with limited fuel hedging and regional exposure faced steeper declines. Meanwhile, shipping and defence equities gained on expectations of elevated freight rates and increased defence spending. In the energy sector, rising tensions in the Middle East have jolted energy markets, pushing oil prices higher as investors weigh the risk of supply disruptions. Analysts caution that diplomatic uncertainty may complicate efforts to stabilise prices despite broader expectations of strong global output.
In the United States and Europe, the energy sector rose substantially on the back of a surge in commodity prices, with the US energy sector gaining 8 per cent and the European energy sector returning 6.3 per cent. Most sectors in Europe recorded negative performance, with only three sectors posting positive returns: Energy, Utilities, and Health Care. In the US, Consumer Staples was the worst-performing sector, with a negative return of 2.5 per cent.
CENTRAL BANKING, THE ECONOMY AND GEO-POLITICS
President Trump reaffirmed he does not intend to dismiss Fed Chair Jerome Powell, despite renewed criticism over policy inaction. He expressed frustration with persistent interest rate levels, arguing they burden federal finances. Trump hinted the Fed should act swiftly amid cooling inflation trends. The central bank is widely expected to hold rates steady in its upcoming meeting. Treasury Secretary Scott Bessent is reportedly under consideration as a possible successor to Jerome Powell when the Federal Reserve chair’s term ends in 2026. While no formal selection process has begun, Bessent’s influence on economic policy has drawn attention within political and financial circles. His potential nomination has garnered backing from prominent figures citing his global market credibility. The administration has yet to confirm whether he will remain involved in the selection process or step aside due to a possible conflict of interest.
Public disagreements between Elon Musk and President Trump over fiscal policy and subsidies have drawn attention, with reports suggesting tensions may impact business relations.”Musk’s criticism of Trump’s trade and tax agenda was met with threats to withdraw lucrative government contracts from his companies. Following a sharp drop in Tesla shares and his own net worth, Musk hinted at stepping back from the feud. Political allies are now urging both sides to de-escalate for the sake of broader economic and strategic interests.
President Trump announced a preliminary trade understanding with China, under which Beijing would accelerate deliveries of rare earths while the US eases some controls on educational visas. Both nations have agreed to maintain tariffs at existing levels, though key aspects of the deal remain unclear. The news drew a mixed market response, with investors questioning the long-term implications. Donald Trump has indicated he will soon notify trading partners of new unilateral tariff rates ahead of a mid-July deadline. While only limited progress has been made in formalising trade agreements, talks continue with key nations including India, Japan, and South Korea. The European Union is expected to be among the last to finalise terms.
The European Central Bank reduced its benchmark rate to 2%, marking its seventh cut in a row, while hinting at a possible pause as inflation approaches target levels. President Lagarde stressed the ECB is well positioned amid global uncertainties, including trade tensions driven by US tariffs. Although inflation pressures have eased, the growth outlook remains clouded by external risks, prompting caution on the future path of monetary policy. Christine Lagarde has dismissed speculation of an early exit from her role as European Central Bank president, affirming her commitment to complete her term. Reports had suggested she was preparing to lead the World Economic Forum, but she clarified she remains focused on her ECB mandate. Her remarks come amid renewed attention on succession dynamics within the eurozone’s top institutions.
COMMODITIES
Heightened geopolitical tensions in the Middle East have unsettled commodity markets, sending oil and gold sharply higher as investors weigh the risk of supply disruptions. Brent crude briefly exceeded $78 following Israeli military action against Iran, with analysts cautioning that any diplomatic setbacks could hinder efforts to stabilise prices. While crude has since retreated, concerns remain that renewed conflict could limit Iranian exports and disrupt the broader energy balance. At the same time, safe-haven flows have driven gold closer to record levels, supported by trade policy uncertainty and inflation concerns. Despite recent volatility, analysts expect any sustained price surges to depend on the depth and duration of regional instability.
Brent crude surged to multi-month highs following Israeli airstrikes on Iran, fuelling expectations of sustained upward pressure on oil prices. Over the past 2 weeks, WTI Crude and Brent prices rose by 20 per cent and 16 per cent respectively. Analysts anticipate average prices to remain above previous lows due to heightened geopolitical risks, particularly to critical export routes. Any severe disruption near the Strait of Hormuz could trigger a sharp spike, with limited room for OPEC to cushion market volatility if tensions intensify. Rising tensions in the Middle East have reignited attention on OPEC’s response capacity, though the group appears content to monitor the situation for now. Analysts suggest any coordinated action is unlikely unless physical supply, particularly from Iran, is disrupted. With significant spare capacity at its disposal, OPEC’s ability to stabilise the market remains intact, but its willingness to act swiftly remains in question.
Gold prices rose as geopolitical concerns prompted increased safe-haven demand. Market uncertainty and inflation concerns continued to support precious metals.Fears of broader conflict and inflationary spillovers have intensified demand for precious metals as a safe-haven asset. Strong central bank accumulation and market volatility are further fuelling bullion's upward momentum in 2025. This provided impetus as well to Silver spot prices which gained 10 per cent over the period.
CURRENCIES
Escalating geopolitical risk and a spike in oil prices have injected volatility into currency markets, complicating the global monetary policy outlook. The euro faces renewed stagflationary pressures as energy costs surge, challenging the European Central Bank's easing trajectory. Meanwhile, the U.S. dollar has seen short-term gains on safe-haven demand, though analysts caution its longer-term position may weaken due to narrowing interest rate differentials and capital outflows. For the first half of June, the US Dollar still weakened by more than 1 per cent as investors continue to shift away from US assets. Trade tensions and potential Fed rate cuts could accelerate a shift away from the greenback, especially if growth data softens. With central banks turning cautious, foreign exchange markets remain highly sensitive to geopolitical developments and inflation dynamics. The Euro currency strengthened by around 1.8 per cent against the US dollar which also weakened by around 0.8 per cent against the British sterling.
OVERALL
Global markets remain delicately poised amid an increasingly complex macro and geopolitical backdrop. While robust consumer sentiment and select corporate advancements offer encouraging signals, persistent uncertainty around Middle Eastern tensions, shifting trade alignments, and evolving central bank policy continues to weigh on risk appetite. Asset class divergence underscores the current market unease—where commodities rally on disruption fears and safe-haven flows, equities grapple with volatility, and currencies adjust to shifting policy trajectories. Investors are likely to remain cautious in the near term, closely watching diplomatic developments, inflation data, and policy responses as key determinants of market direction.
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