Far from Strait forward

• US equities, which rose +3.44%, as global growth stocks (+4.13%) rebounded
• Bonds, with major markets seeing yields fall. The broad UK gilt index returned +0.96%
• Precious metals, as gold advanced +7.41% and silver +9.89% in US dollar terms

• Oil, as Brent crude declined -13.80% in US dollar terms
• Emerging market equities, which underperformed developed market peers, falling -0.65%. Korean equities fell -7.45% 

(All equity data is MSCI; all data in sterling unless stated)

Oil prices retreated for much of last week as markets continued to digest the back-and-forth diplomacy and fragile pronouncements which provide the backdrop to the on-going standoff in the Middle East. Reports emerged that negotiations involving Iran and Oman over the potential opening of a new route through the Strait of Hormuz were moving closer to an agreement. The news provided some hope that June’s Memorandum of Understanding, signed by the US and Iran, could be revived. US President Donald Trump suggested that an agreement to facilitate a gradual reopening of the Strait was close. However, oil prices rose on Thursday, with Iran continuing to link any reopening to US concessions – including the lifting of its naval blockade and military withdrawal. Tehran also denied any direct negotiations with the US. 

Concerns over regional stability and shipping routes intensified further following various additional incidents. Iran reportedly targeted a commercial ship linked to the national oil company of the United Arab Emirates, while Iran-backed Houthi rebels claimed responsibility for attacks in Yemen, which spilled into Saudi Arabia. Oil prices ended last week at around $80 per barrel but rose further in early trading this week.

The incidents further heightened fears over energy security. Yet, despite the posturing, there seems little appetite from Iran or the US for significant escalation. Tit-for-tat strikes, demands and counterclaims abound for now. And, despite the ongoing impasse, the geopolitical risk premium which drove oil prices higher when the conflict first erupted has reduced. Energy markets are finding a way to function; oil supply is seemingly meeting demand. Nevertheless, with the US midterm elections moving ever nearer, President Trump will be keen to present a positive outcome and avoid higher fuel prices for US consumers. And economic pressure could mount for Iran the longer the blockade persists.

The US Bureau of Labor Statistics reported an unexpected decline in jobs during July, although the unemployment rate edged lower. Nonfarm payrolls fell by 23,000 for the month, led by cuts in local government education and retail roles. The consensus forecast had been for an 80,000 gain. The number of jobs added in May and June were also revised down by over 100,000, suggesting a trend of slow job creation over the summer. While the headline unemployment rate ticked down to 4.1%, from 4.2%, the dip was driven by a shrinking workforce rather than job creation.

Average earnings also saw very little gain over the month, rising by 3.2% over the year to July, below expectations and the prevailing rate of headline inflation. The next US Consumer Prices Index (CPI) inflation print is due later this week. If inflation data continues to suggest real wages are declining, it could provide further evidence that inflationary pressures linked to higher energy prices are yet to become more structurally entrenched.  

For the US Federal Reserve (Fed), the latest labour market data could buy policymakers a little more time, reducing the pressure to hike interest rates. Members of the rate setting Federal Open Market Committee (FOMC) are split on the path for interest rates, voting 9-3 in favour of holding benchmark rates in place last week. An economy and labour market which had seemed resilient, coupled with persistently above target inflation, had seen expectations of a rate hike as soon as September increase. The odds of a near-term move fell after last week’s news. 

Nevertheless, the week’s data releases were not without conflicting economic signals. The latest S&P Global US Composite Purchasing Managers’ Index (PMI) surged to 54.5 from June’s 51.9 – its strongest expansion since late 2025. With any reading above 50 signalling likely future growth, the print points to robust private sector activity across both manufacturing and services. 

Budget airline EasyJet agreed to a £5.7bn takeover by US private equity group Apollo Global Management last week. Apollo's offer represented a substantial premium to the pre-bid share price, after prior suitor, Castlelake, walked away.

The deal will see another well-known name disappear from London markets in the latest example of overseas buyers targeting London-listed companies. The transactions have partly been driven by the valuation discount relative to US and global peers, making UK companies attractive propositions. UK markets underperformed global peers last week, but UK mid- and small-cap indices outperformed amidst the takeover speculation and activity. However, the volume of deals in recent years has arguably seen the breadth and depth of the UK public equity market shrink.

• UK retail sales surprise : A +1% increase in June beat expectations, as warm weather and the World Cup boosted spending on fans, air conditioning and clothing. Following May’s +1.2% increase, sales volumes are now +4.2% higher than a year ago, providing a welcome sign of resilience in consumer spending despite cost pressures
• UK housing market stalls: UK house prices were broadly unchanged in July, as higher mortgage rates weighed on demand. The average UK home was valued at £299,253, just £143 lower than in June
• SpaceX results: SpaceX reported its first public earnings, with Q2 revenue up 92% year-on-year to $7.8bn, supported by Starlink and AI-related demand. However, shares fell around 8% as investors focused on hefty $18.4bn capital spending
• AI safety concerns: Meta faced scrutiny after reports that one of its AI models accessed systems belonging to an external company during cybersecurity testing. The incident adds to growing concerns around autonomous AI safety, following similar testing issues recently reported by Anthropic and OpenAI
• Trump tariffs: President Trump announced a 15% tariff on imported products containing polysilicon, including solar cells and semiconductor-related components, alongside minimum import price rules. The measures, due to take effect on 4 December, aim to reduce US reliance on Chinese-dominated supply chains and boost domestic production of critical technologies
• China targets offshore trusts: China is to introduce a 20% tax across nearly every stage of an offshore trust’s life. Long used by wealthy Chinese families, those using the vehicles have until 22 October to declare assets transferred since the start of 2023. The move signals a tougher stance on offshore wealth planning

Disclaimer

Past performance is not a reliable indicator of future returns. Nothing herein should be construed as a recommendation to hold, buy or sell any security or encourage any investment decision. The mention of any particular asset class, sub-asset class or company does not imply that it is held, or may ever be held, in any product or service.