Market overview – Richard Carter, Head of Fixed Interest Research
US trade policy took a back seat last week as Israel launched a series of attacks on Iran’s nuclear infrastructure and military leadership, prompting retaliation by Iran in the form of missile strikes across Israel’s northern cities. As the two countries continued to trade attacks, crude oil prices spiked, unwinding the price fall seen since April, while gold prices also rallied. The reaction in other asset classes was more muted, with global equities falling around 1% on Friday (in GBP terms), however all eyes are on whether the situation escalates from here, with a closure of the strait of Hormuz being one of the more negative potential scenarios. Such an outcome would see a significant spike in oil prices, which would be an inflationary supply shock at a time when the full effect of tariff-related price rises has yet to filter through into official inflation measures – US headline CPI rose by 0.1% in May, less than the 0.2% expected by the market. Sterling rose around 0.3% against the US dollar over the week, while 10-year gilt yields fell around 9 basis points.
Looking ahead, this week we have policy decisions from the Federal Reserve and the Bank of England, following the decision by the Bank of Japan to leave policy rates unchanged at 0.5% today, but given the level of geopolitical and macroeconomic uncertainty we are unlikely to see any changes. With the Israel-Iran conflict now in its fifth day, the sight of President Trump leaving the G7 summit a day early to return to Washington will do little to calm any market jitters. As with any period of increased uncertainty, it is important to remember the importance of a well-diversified portfolio, with exposure to a broad range of return drivers being the best preparation for any potential future volatility.
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Approver: Quilter Cheviot, 20 June 2025
