Weekly Market Update: the President who cried peace

The latest economic news and market highlights from the UK and abroad.

This week's headlines: 

• Iran pours cold water on Trump’s deal claim – President Trump has once again claimed that an agreement to end the conflict is imminent, however Iran has described the proposal as speculative. Only hours before, Trump declared the US would hit Iran and seize key energy infrastructure, following tit-for-tat strikes between the two countries earlier in the week.

• IPO lift-off for SpaceX – Elon Musk is poised to become the world’s first trillionaire when his rocket, AI and social media conglomerate SpaceX lists on the US stock exchange today. With a target price of $135 per share, this initial public offering (IPO) is expected to raise approximately $75 billion, making it one of the largest in history.

• Europe raises interest rates – The European Central Bank (ECB) became the first major central bank to respond to the inflationary environment by hiking rates 0.25% this week, with a further raise anticipated next month if the shock from the war in the Middle East requires it.

• US inflation spikes higher – Headline US inflation hit a three-year high at 4.2% year-on-year in May, underscoring the impact of the disruption to the Strait of Hormuz. When factoring in the higher inflation, real average hourly earnings fell 0.7% from a year earlier, the biggest drop in more than three years.

• UK economy shrinks – GDP fell by 0.1% in April, the first monthly decline since August. The contraction had been forecast by economists due to stronger than expected growth in March and the impact of the conflict in the Middle East. The weakness in the economy could allow the Bank of England to hold interest rates when they meet next week, amid the backdrop of inflationary pressure.

Volatile markets

Geopolitics and inflation continue to drive short-term asset prices. Ongoing tensions in the Middle East, and uncertainty around any credible resolution, is feeding into oil prices and inflation expectations. And this means a more volatile market environment, where sentiment can shift quickly. But while the past can’t predict the future, historical drawdowns driven by geopolitical events are typically temporary unless they undermine global growth more materially.

Inflation and central banks

At the same time, the inflation picture has become more complicated. US CPI climbed to a three-year high, and the ECB is already responding with tighter policy. This reduces the chance of rate cuts any time soon, and points to a “higher-for-longer” interest rate environment, particularly in the US.

Meanwhile, weak UK growth highlights a diverging regional picture, suggesting central bank responses will be uneven, reinforcing the importance of maintaining global diversification.

The outsized influence of AI stocks

Finally, equity markets continue to be shaped by narrow leadership in large-cap growth and AI-related themes, exemplified by the scale of the SpaceX IPO. While long-term innovation trends remain intact, elevated valuations and increasing capital requirements introduce greater scrutiny and potential volatility.

For clients, the key message remains unchanged: a disciplined, diversified approach is essential, with portfolios positioned to navigate both macro uncertainty and concentration risks within equity markets.

Largest global IPOs this century

The chart above shows the value of the top 100 IPOs since 2000, in today’s dollar terms. The size of the circles represents the total market cap (total shares x share price) of the companies. The scale on the left-hand side tracks the value of the initial offering floated to markets. This is an important distinction – whilst SpaceX is valued by the market at $1.8trn, only $75bn worth of shares will initially be available to investors through public markets. This is a typical approach for large IPOs, with the listing of Saudi Aramco in 2019 being the most recent example of comparable market value.

As the year progresses, we may see further IPOs from the likes of OpenAI and Anthropic, with estimated market caps of $1trn and $300bn respectively, marking out 2026 as potentially the largest IPO year in history in both valuation and capital raised.

Clients should reflect upon the concentration risks in their portfolios, particularly in relation to the increased allocations in the US market to tech and AI-related businesses that these IPOs will bring.

AI appetite returns

The Nasdaq soared 2.5% higher yesterday, driven by hype and liquidity from the SpaceX listing and analyst upgrades linked to the AI infrastructure trade. Memory-chip maker Micron surged over 11%, while semiconductor fabrication supplier Lam Research jumped more than 12%.

Emerging concentration risks

Emerging market equities suffered a bruising AI sell-off this week, with the rebound trade only hitting the region earlier this morning having already supported developed markets yesterday after the close in Asia. Earlier in the week, South Korea's Kospi index suffered a historic single-day slump of nearly 9%, briefly triggering automatic circuit breakers to halt trading. Semiconductor giants Samsung Electronics and SK Hynix fell 9% and 6% respectively, while Taiwan and Hong Kong’s Hang Seng indexes faced similarly aggressive liquidations.

Crude plummets for peace

Oil prices are headed for a 3-month low, with hopes the US will secure a peace agreement with Iran at next week’s G7 meeting. Traders remain concerned at the potential for a surge in prices if the Strait of Hormuz doesn’t reopen soon.

Gold weakens under inflationary pressure

Gold broke decisively below its 200-day Simple Moving Average (“SMA”) triggering algorithmic liquidations. The precious metal touched an 11-week low of $4,080 an ounce, before recovering today on hopes of a peace deal between the US and Iran. Increased prospects of a hike in US interest rates, now priced in with a 70% likelihood for December, weighed down on the non-yielding safe haven asset.

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