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6 Jul 2026 | 3 minutes to read
(All equity data is MSCI; all data in sterling unless stated)
Expectations that the US Federal Reserve (Fed) will raise interest rates this year have faded after weaker-than-expected US jobs data. The economy added 57,000 jobs in June, around half the consensus forecasts, with the data from April and May also revised downward by 74,000. Whereas healthcare and construction continue to be key contributors to the labour market, hospitality and leisure fell unexpectedly, despite a shot-in-the-arm from hiring around the FIFA World Cup. The unemployment rate fell to 4.2% from 4.3%, albeit more down to a shrinking workforce with more retirees than to increased hiring.
Lately, policymakers have been concerned about a surge in inflation due to the Iran war. The other side of the Fed’s mandate, the jobs market, doesn’t evidence a need to raise interest rates any time soon. Monthly data can be volatile, but the latest release was cooling more than chilling. US 2-year treasuries rallied slightly on the news.
Meanwhile, Bank of England Governor, Andrew Bailey, played down the possibility of a rate cut this year at a conference in Portugal. He said that cuts remain off the table, despite a weaker UK economy.
After months of turmoil, oil markets appear to be stabilising as confidence builds around the 60-day ceasefire between the US and Iran. Brent crude is back near its pre-conflict level of around $72 a barrel after surging above $120 during the war. Investors are increasingly hopeful that negotiations will keep oil flowing through the Strait of Hormuz and reduce the risk of further supply disruptions.
The recovery has been supported by a sharp improvement in supply. Since US restrictions were eased, Iran's chief negotiator stated last week that the country has exported around 40 million barrels of oil. This additional output has helped ease shortages after disruption to shipping through the Strait significantly reduced flows during March and April.
Demand trends have also helped rebalance the market. China, the world's largest oil importer, has spent the past 18 months stockpiling strategic reserves and reduced its immediate dependence on shipments through the Strait. Together with limiting refiner runs and substituting away from oil, China helped ease pressure on global supply chains. Equally, it’s now clear that more oil was flowing during the war than first thought, both through the Strait itself and via Saudi and UAE pipelines. As supplies have improved, demand adapted and fears of disruption faded, the geopolitical risk premium that drove oil prices higher has steadily unwound.
Lower oil prices could have important implications for investors. Energy costs remain a key driver of inflation, so a sustained period of cheaper and calmer oil markets would help dampen price pressures and volatility across supply chains. Forecasts vary, but if the truce holds then $60-$70 per barrel by Christmas is possible. That may mean policymakers are less inclined to raise interest rates, and this may be supportive for markets and the global economy.
Meanwhile, the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) has decided to raise their collective production target by 188,000 barrels per day (bpd). The group has raised out by around 940,000 bpd since the start of the conflict, representing roughly 1% of global demand.
As the US, Mexico and Canada co-host the FIFA World Cup, the future of their free trade agreement is in doubt after the US blocked its automatic renewal. The USMCA treaty – the successor to the North American Free Trade Agreement (NAFTA) – allows a highly integrated free market worth some $2trn a year to flow with each partner bringing relative strengths: the US a huge market, Mexico cheap labour and Canada cheap energy. Whilst staying in place for now, there is considerable uncertainty for businesses moving goods across borders.
President Trump’s goal for USMCA is to shift global supply chains closer to the US, with Mexico and Canada enjoying preferential trade treatment with no 10% universal tariff. But as this shift happens, the administration is keen to set guardrails and there are sticking points. The trio adheres to rules of origin to determine which goods qualify for preferential tariff treatment, tracking the provenance of every component in every part of a good sold, ostensibly to prevent the back-dooring of goods from China via third nations. The rules are onerous to replicate and confer a trade advantage on Canada and Mexico. But America wants agreement on how to treat AI, critical minerals and Arctic security, and whether a trading partner – such as China – is ultimately designated a ‘foreign entity of concern’.
The move to annual USMCA reviews is not ideal. A country can pull-out entirely with six months’ notice. Businesses will hope that the trio’s relative success on the football field can be repeated at the negotiating table.
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