Market Review 20th July 2026

Everything you need to know, Simplified!

A tale of two markets: the balance of optimism and anxiety

Summary

• Markets were pulled in different directions last week, with encouraging economic data and robust earnings competing against rising geopolitical tensions and concerns around artificial intelligence (AI)-related investments

• Continued US-Iran hostilities kept oil prices elevated, initially pushing bond yields higher as investors worried about renewed inflation pressures

• However, weaker-than-expected US inflation figures for June later provided support for Treasuries (US government bonds), with consumer prices recording their first monthly decline in six years

• While Treasuries mostly ended the week slightly firmer, gilts (UK government bonds) and bunds (German government bonds) lagged, ending the week with higher yields

• The US's largest banks reported strong results, supported by increased trading activity and a pickup in corporate dealmaking; credit quality also remained stable, suggesting households and businesses remain in relatively good financial health

• Brent crude oil rose above US$88 per barrel as US-Iran hostilities intensified, gaining almost 16% over the course of the week

• Shares of companies linked to AI investing came under pressure as investors questioned whether the vast investment will ultimately generate enough profits to justify current valuations; these concerns intensified after a Chinese startup demonstrated competing AI capabilities underlining how quickly rival firms are closing the gap

• Investors shifted away from AI and semiconductor stocks and towards sectors such as banking, energy and consumer staples

• UK shares held up relatively well thanks to their greater exposure to financials, energy and consumer staples, while some Asian markets were hurt by their reliance on technology and semiconductor companies

• Andy Burnham is set to become UK Prime Minister today, with attention this week focusing on his policy agenda and Chancellor appointment, with Shabana Mahmood the new frontrunner.

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Market Review

Iran escalation: From ceasefire collapse to infrastructure strikes

The week kicked off against the backdrop of a renewed US-Iran conflict. The ceasefire agreement reached a month earlier had effectively broken down and hostilities that had resumed over the weekend intensified further as the week went on.

By Friday, the US had conducted seven consecutive nights of strikes, expanding to hit road bridges and port infrastructure. Iran responded by attacking American bases in Kuwait and Jordan and then striking Kuwaiti water and power plants later in the week. Shipping traffic through the Strait of Hormuz slumped materially across the week.

Brent crude rose sharply on Friday to around US$88 per barrel, heading for its biggest weekly advance since April.

Inflation relief, but Warsh holds the line

The June CPI and PPI inflation data were the clearest positive macro development of the week. Monthly consumer prices fell for the first time in six years, driven in large part by a drop in gasoline prices, pulling the year-on-year rate to 3.5%. Core PPI rose just 0.2% month-on-month, below the 0.3% consensus.

Despite the encouraging data, Chair of the US Federal Reserve (Fed) Kevin Warsh used his Congressional testimony to reiterate that restoring inflation to the Fed's 2% target remains a priority and that policymakers have "no tolerance for persistently elevated inflation".

AI theme questioned

The AI investment theme came under pressure last week after technology company IBM warned that customers were redirecting technology budgets towards AI infrastructure. This raised concerns that the benefits of the AI boom may be concentrated among a relatively small group of winners.

At the same time, record-breaking results from AI chipmaker TSMC reinforced that demand for AI remains exceptionally strong, but also highlighted the enormous investment required to support the industry's growth.

Towards the end of the week, Chinese AI start-up Moonshot launched Kimi K3, a powerful new AI model that appeared to narrow the gap with leading US competitors. The announcement added to an AI sell-off that was already underway and reinforced concerns that advanced AI models may be becoming more widely available and less differentiated.

Focus on Number 11

Reports that Shabana Mahmood is currently the leading contender for Chancellor were generally received positively by markets. Investors view her as a right-of-centre and pragmatic figure, although the identity of the Chancellor is likely to matter less than the new government's broader approach to growth, taxation and public spending.

Attention will therefore focus on Andy Burnham's wider economic agenda in the coming weeks.

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The week ahead

Andy Burnham becomes the UK Prime Minister today, with investors looking for further details on his policy agenda, Cabinet appointments and the direction of the new government's economic strategy. 

UK weekly earnings (Tuesday), UK inflation data (Wednesday) and flash S&P PMIs across the US, UK and Eurozone (Friday) are the key data releases.

The European Central Bank concludes its policy meeting on Thursday. Earnings season continues, with Tesla, Intel, Alphabet and American Express among the notable reporters next week.

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