Shooting for the stars

• Europe ex UK equities, which added +1.85%
• UK listed real estate investment trusts, which advanced +4.55%

• Oil, with brent crude falling -10.27% in US dollar terms
• Gold and silver, which declined -2.65% and -1.63% respectively in US dollar terms

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

SpaceX raised £75bn in a heavily over-subscribed and record-breaking initial public offering (IPO) last week. And the shares were propelled higher once trading stared, immediately rising above the $135 per share offer price. The shares closed at $161 last Friday – valuing the rocket, satellite, artificial intelligence (AI) and social media group at some $2.1trn – and underlining investor appetite for AI-related tech. SpaceX plans to deploy the capital raised into various ambitious projects as it enters “a significant growth phase”. Among the slated projects are plans to build data centres in space. And the large growth projections will need to come to fruition if the valuation now ascribed to the company is to prove justified. Currently only SpaceX’s Starlink satellite internet division is profitable. Investors may have to be patient.

The mechanics of how a company of such size enters share indices is also key. Some index providers have adapted their rules for inclusion to accommodate the listing, allowing SpaceX to enter the indices somewhat sooner than would otherwise be the case. Most significantly, some have reduced their minimum “free float” requirements. When undertaking an IPO, a company will typically only make a small proportion (maybe 10-25%) of its shares available for public trading. In the case of SpaceX, it was only around 4%, with the vast majority of shares initially locked up in the hands of company insiders and private investors. When price-agnostic index funds buy shares to match the company’s weighting in the index, the relative scarcity of shares floated publicly could create a liquidity strain, leading to price distortion. If an index provider applies a weighting multiplier to the actual free float percentage – to partially account for the fact that the company would otherwise occupy a greater weighting in the index – the impact could be amplified.

A public listing should, however, provide investors with far greater insight into the company’s underlying fundamentals. Detail on revenue, profitability and balance sheet strength will be made available regularly as the company reports publicly. 

Three months since the outbreak of hostilities in the Middle East, the US and Iran have agreed a framework deal to bring an end the confrontation and open the Strait of Hormuz – a key transport route for oil, liquified natural gas (LNG) and other commodities. While the deal does not yet represent a concrete peace agreement, it does appear to be a significant step to achieving a more durable pact than has hitherto been the case. How quickly, and under what conditions, the Strait of Hormuz will reopen is not yet clear. And it will likely take some time for the passage of oil through the Strait to return to pre-conflict levels. More detail should emerge in the coming days, ahead of the deal being formally signed in Switzerland on Friday. US President, Donald Trump, has suggested the text of the deal will be published. As of last week, the flow of oil and LNG through the Strait was thought to be 25-30% of normal levels. And it could take as long as six months before pre-war levels are reached. For now, supply is likely to remain constrained vs demand; inventory levels will have to be rebuilt, while countries may well look to build greater strategic reserves than was previously the case to protect against future supply shocks. The oil price fell towards $80 a barrel on the news, still somewhat higher than the $60-65 level seen pre-conflict. 

The European Central Bank (ECB) raised interest rates for the first time since September 2023, with the quarter point increase bringing the headline deposit rate to 2.25%. The hike comes in response to higher inflation forecasts as a result of the Iran war. The ECB raised its 2026 inflation forecast to 3% from 2.6% in March and 2% pre-conflict. 

ECB president, Christine Lagarde, argued that the energy shock had lasted longer than expected, and inflationary pressures were beginning to diffuse into the economy more broadly. Lagarde dismissed suggestions from some economists that the move could ultimately prove a policy misstep. Some commentators argued that raising rates will not change the eurozone inflation dynamic, with consumers likely to further reduce savings rates when facing higher oil prices. Hiking rates could therefore prove unnecessary as far as price stability is concerned, while curtailing already sluggish growth. Furthermore, European labour market data is relatively unconcerning from an inflation perspective, with wage growth expected to ease in the second half of the year. 

The Federal Reserve (Fed) and the Bank of England (BoE) will each hold policy meetings this week, but neither are expected to follow the ECB’s lead. Policy rates in the US and UK are already higher, with the Fed and the BoE cutting rates less aggressively than the ECB over past two years. Both are expected to keep rates on hold, despite US consumer price inflation rising to 4.2% over the 12 months to May (up from 3.8%).

Lagarde stressed that the ECB was not committing to a particular rate path. Although many commentators thought it relatively likely that at least one further rate hike would follow later in the year, that was before the announcement of a US-Iran deal over the weekend. 

China’s latest economic data continues to highlight the strength of its export sector, contrasting with a subdued domestic recovery and intensifying geopolitical pressures on its technology champions. Chinese exports remained a key driver of growth, rising +19.4% year-on-year in May, well above expectations of +15% and accelerating from April’s +14.1% gain. Imports also surprised, increasing +27.4% year-on-year versus a forecast of +25%, according to China’s General Administration of Customs. Strong global demand for semiconductors, electric vehicles, computing hardware, and AI-related spend underpinned the numbers, as exports remain a central pillar of China’s economy.

However, inflation data reflects the uneven domestic picture. Producer price inflation (PPI) rose +3.9% year-on-year in May, up from +2.8% in April, driven by stronger industrial demand and export activity. In contrast, consumer price inflation (CPI) remained subdued at +1.2%, slightly below expectations. This widening divergence between the two measures suggests that export-oriented and industrial sectors are benefiting from external demand, while domestic spending remains relatively weak.

Meanwhile, geopolitical headwinds are intensifying. Washington has expanded its list of Chinese companies allegedly linked to military or defence activities, adding major firms including Alibaba, Baidu and BYD. The Pentagon’s blacklist now includes 188 companies, up from 134 in 2025. US defence procurement will now be barred from contracting directly with these firms, with further restrictions on indirect procurement set to follow next year. While these measures stop short of outright investment or export bans, they underscore a continued hardening of US policy toward China’s technology sector.

• Japanese GDP – Japan’s economy grew by at an annualised rate of +1.8% over the first quarter of 2026, less than the +2.1% previously estimated but still exceeding expectations. Growth was supported by higher household and government spending, alongside stronger exports
• Taiwanese AI chip exports – Officials are considering imposing stricter export controls on AI chips bound for China. The move is intended to tighten national security and protect technological capabilities, while also aligning more closely with US policy
• UK economy – The UK economy contracted slightly in April. The Office for National Statistics (ONS) reported a -0.1% fall, the first monthly decline since August. Over the three months to April the economy grew by +0.7% compared to the previous three-month period thanks to strong first quarter growth in 2026
• UK consumer spending – British Retail Consortium (BRC) data suggested like-for-like retail sales increased by +3.4% year-on-year in May. The print, the highest in more than a year, was well above expectations of a +0.8% increase and reversed the -3.4% decline seen in April
• UK defence spending – Chancellor Rachel Reeves left the door open to future tax rises to fund the long awaited 10-year defence spending plan, noting that borrowing can’t be the only answer. Discontent with the plan lead to the resignation of defence secretary, John Healy
• OpenAI & Visa Inc. – Under a new partnership with OpenAI, Visa will embed its global payment network and security infrastructure into OpenAI’s platforms, like ChatGPT. The move is part of a broader initiative to build secure payment services in AI commerce
• US consumer sentiment – Easing gasoline prices buoyed US consumer sentiment in June. The University of Michigan’s Consumer Sentiment Index rose to 48.9, recovering somewhat from May’s all-time low of 44.8, and ahead of expectations of 46

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.