Written by Millan Chauhan
Last week, global equity markets, as measured by the MSCI All Country World Index, fell by 0.6% in GBP terms, amid escalating geopolitical tensions in the Middle East.
Earlier in the week, markets had reacted positively to better-than-expected economic data and improving sentiment around tariff negotiations. In the U.S., inflation came in cooler than anticipated as the Consumer Price Index (CPI) rose by just 0.1% in May, bringing the year-over-year figure to 2.4%.
A closer look at the report reveals that shelter prices, which includes rent and mortgage payments, continued to keep inflation above the Federal Reserve’s 2.0% target. Shelter costs increased by 0.3% on a month-on-month basis and by 3.9% on a year-over-year basis in May.
The Bureau of Labour Statistics Producer Price Index, which is a reflection of prices from domestic producers, also surprised to the downside. This suggested that the price impact from imposed tariffs has been more muted than expected so far. We think it is worth noting that several components within the CPI basket exhibit significant time lags, potentially overstating inflation pressures and failing to reflect real-time price dynamics. Meanwhile, tariff negotiations between the U.S. and China advanced, with an initial agreement poised to increase tariffs to 55% on Chinese imports.
Fixed income markets posted positive returns last week as yields declined in response to cooling U.S. inflation data. High-quality bonds, as measured by the Bloomberg Global Aggregate Index, returned +0.4% in GBP hedged terms. However, the most interest-rate-sensitive segment of the market led the way, with the Bloomberg U.S. Treasury 20+ Year Index gaining +1.1%.
However, on Friday, news emerged that Israel had launched a series of targeted airstrikes on Iran’s nuclear and military infrastructure, as well as on senior Iranian personnel. Markets responded negatively to this development. The escalation of tensions in the Middle East further raised uncertainty, contributing to a sharp rise in oil prices due to fears of a global supply disruption.
Oil prices surged by their fastest pace in three years, with crude prices climbing roughly +12% over the week. Iran, a major global oil exporter, has recently averaged around 1.5 million barrels per day in crude exports, most of which are shipped to Asia, with China as the primary buyer. This oil price rally helped lift the broader commodity index, which rose by +2.0% in GBP hedged terms, as measured by the Bloomberg Commodity Index. In line with its traditional role as a safe-haven asset, gold also gained +3.3% last week, reinforcing its appeal during times of heightened uncertainty.
In an environment of rising global conflict and uncertainty, we continue to believe that diversification across asset classes and investment styles remains the most effective approach to navigating markets.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th June 2025.
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