Market Review 27th July 2026

Everything you need to know, Simplified!

Oil, tariffs and rates: familiar themes take a new turn

Summary

• Energy markets saw a sharp resurgence in volatility as Middle East tensions re-escalated, with Brent crude briefly topping US$100 a barrel – its first move above that level since late May – before easing back under US$96 on Friday, still leaving oil up sharply on the week

• The European Central Bank (ECB) held rates unchanged at its July meeting, but with a notably hawkish tone given the inflationary risk from the energy shock; the US Federal Reserve (Fed) and Bank of England (BoE) both meet next week amid a similarly uncertain backdrop

• New Fed Chair Kevin Warsh continued to strike an unambiguously price-stability-focused tone in recent congressional testimony, raising the question of whether the Fed's dual mandate is being applied differently than under his predecessor

• A new round of US tariffs took effect this week under a different legal authority than before, though the effective rates on most countries were largely unchanged

• US equities were volatile, with a sharp Thursday sell-off in megacap tech (on disappointing Alphabet and Tesla results) partly reversed on Friday.

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Market Review

Energy volatility returns as Middle East conflict re-escalates

Oil markets swung sharply higher this week as the conflict between the US and Iran continued to intensify. Brent crude moved above US$100 for the first time since May, gaining c.7% in a single session. The escalation was marked: the US launched a 13th straight day of strikes on Iran, with both sides ruling out near-term talks, while tanker flows through the Strait of Hormuz have effectively stalled amid heightened security risks. Iran has reportedly asked the Houthis – an Iran-backed armed group that controls much of northern Yemen – to stand ready to close the Red Sea route if the US strikes Iranian power infrastructure, raising the prospect of both of the region's key export routes being disrupted at once. Prices eased somewhat on Friday as Houthi-related tanker attacks calmed, but the risk premium embedded in oil remains substantial, with the path from here depending heavily on whether diplomacy or further escalation wins out.

Central banks: a hold from the ECB, a hawkish tilt at the Fed

The ECB kept rates unchanged at its meeting on 23 July, with the deposit rate – the interest rate a bank pays for keeping money with them – remaining at 2.25%. The hold was widely expected, but the tone from Frankfurt was firm: with oil back above US$95 a barrel, Lagarde framed the pause as tactical rather than an end to tightening. July is a non-projection meeting, so the bar for a fresh move was always higher. The more consequential decision is likely to come in September, once new forecasts are available. The Fed and BoE both announce decisions next week – the Fed on 28–29 July and the BoE on 30 July.

Fed Chair Kevin Warsh has used his first appearances before Congress to draw a clear contrast with his predecessor. Warsh told committee members the Fed has no tolerance for persistently elevated inflation and shares a resolute commitment to restoring price stability. He has offered no indication of the dual mandate being weighed evenly between inflation and employment. Coming just as energy prices are pushing price pressures higher again, that tilt suggests markets may have priced in more tolerance for an AI-capex-driven inflation impulse than the new Fed leadership is willing to give.

Tariffs: the legal basis shifts, but effective rates hold steady

A new set of US tariffs took effect on 24 July. The temporary 10% Section 122 global surcharge, designed to address trade imbalances, expired at the same moment a new Section 301 action targeting unfair trade practices and tied to forced-labour enforcement came into force across 60 economies, including the UK and EU. For most countries, the new rate simply mirrors the outgoing rate, so effective tariff burdens are largely unchanged. The US is increasingly relying on Section 301 as its durable legal vehicle for tariff policy following successive court challenges to the executive's use of emergency powers.

Regional equity allocations – concentrated exposure and the search for genuine diversification

The Korean equity market has become the clearest illustration yet of how concentrated the artificial intelligence (AI) theme has become within ‘diversified’ regional and emerging market (EM) exposure. Return volatility on Korean equities exceeded 60% as of 20 July, nearly twice the level on Japanese equities and higher than Bitcoin's volatility over the same period. The Korea Exchange has activated circuit breakers seven times through mid-July, compared with none in 2025. Samsung Electronics and SK Hynix saw their combined weighting rise above 50% ahead of the recent pullback, meaning investors buying funds that track the broader Korean market have gained highly concentrated exposure to two semiconductor companies and the global AI investment cycle, rather than a diversified domestic equity market. The index has tumbled around 25% since its June peak, a roughly US$1trn wipeout, with the two chipmakers each losing at least 30% of their value, a sharp reversal after a rally that saw the index nearly double earlier in the year.

The pattern shows up, in a milder form, across the standard EM benchmark. The top ten constituents of the MSCI Emerging Markets Index, which tracks the performance of large and mid-sized companies across emerging markets, make up 40% of the index, with TSMC and Samsung Electronics alone accounting for nearly a quarter of it. In contrast, no single country accounts for more than 10% of the MSCI Frontier & Emerging Markets Select Index, and technology exposure across it is just 1%; returns there are driven by domestic consumption and financial services as much as by exports or resources.

There is also a valuation angle. Some genuinely under-exposed EM markets are being reframed by investors as diversifiers rather than laggards. A headline EM allocation can leave a portfolio more exposed to a single macro theme, AI hardware demand, than a domestic-facing developed-market allocation would. Markets such as the Philippines, Kenya or India offer growth drivers largely uncorrelated with the AI narrative, but only for investors who select them deliberately; standard index-tracking exposure to ‘EM’ increasingly means a leveraged bet on two or three Asian chipmakers. Gold and infrastructure told a similar story earlier this year: broad thematic and regional labels can mask very different underlying risk profiles.

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The week ahead

Fed and BoE rate decisions (29 and 30 July).

Our view: Unlikely to see moves this month, but the press conference and commentary will give important signals for future movements. We expect a notable hawkish stance from both meetings – whilst an imminent rate rise is not our base case, it would not come as a huge surprise.

US Q2 GDP and June PCE inflation (30 July).

Our view: GDP should show an improvement versus Q1. Personal Consumption Expenditures (PCE) report (the Fed’s preferred gauge of inflation) will be scrutinised for early evidence of any energy-driven price pressures re-entering the read.

Big tech earnings: Microsoft and Meta report Wednesday, followed by Amazon and Apple on Thursday.

Our view: AI capex and free cash flow trends are likely to remain the key focus after last week's negative reaction to Alphabet and Tesla numbers.

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