Market Review 6th July 2026

Everything you need to know, Simplified!

Markets rise, but investors keep one eye on politics and policy

Summary

• Many UK investors head into the week in a celebratory mood as England progress to the World Cup quarterfinals, capping a generally constructive week for markets

• Global equities ended the week higher, despite a mid-week chipmaker selloff, driven by Artificial Intelligence (AI) overcapacity fears

• European and UK stocks outperformed, insulated from AI fears by their low technology weightings

• Early week gains rounded out an exceptionally strong quarter in many technology-led markets, despite a more mixed June performance

• Brent oil futures fell to near US$70 per barrel during the week, below their level at the start of the US-Iran conflict, as peace talks took place in Qatar

• The US nonfarm payrolls report was sharply below expectations with 57k jobs added in June, around half of consensus expectations, pushing Treasury yields lower and diminishing US Federal Reserve (Fed) rate-hike bets

• Although the unemployment rate fell to 4.2%, the improvement was largely driven by fewer people participating in the labour market

• A softer-than-expected eurozone June Consumer Price Index (CPI) reading at 2.8% reinforced hopes that inflation pressures are easing, while the European Central Bank’s annual Sintra forum revealed diverging central bank views

• Fed Chair Kevin Warsh maintained a hawkish stance, characterising the 2% inflation target as non-negotiable

• Bank of England (BoE) Governor Andrew Bailey struck a more dovish tone, pointing to moderating price pressures and a softer labour market backdrop

• Andy Burnham, the expected next UK Prime Minister, unveiled plans to shift power away from Westminster to a new ‘Number 10 North’, alongside reforms to business rates and greater regional control of key public services, although questions remain over his fiscal policies.

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Market Review

Burnham and bonds

Bond markets have a long history of keeping politicians in line. In the 1990s, Bill Clinton scaled back spending plans after US Treasury yields rose sharply, prompting adviser James Carville to joke that he wanted to be reincarnated as the bond market because it could “intimidate everyone”.

Andy Burnham appears aware of that discipline. When he announced his candidacy for the Makerfield by-election in mid-May 30-year gilt yields were close to 30-year highs at 5.85%, reflecting concerns about future government borrowing. Longer-dated gilts are especially sensitive to political risk because they rely heavily on confidence in the government’s long-term finances.

He has since tried to reassure investors by backing the government’s current fiscal rules and surrounding himself with experienced economic advisers, including Andy Haldane, Richard Hughes and Jim O’Neill.

His recent speech repeated that message, with a clear commitment to not take risks with the public finances. However, the lack of detail means investors still have some unanswered questions.

Plans for devolution, council housebuilding and greater local control of public services could require significant investment, but it is too early to judge the full fiscal cost or how it would be funded.

The choice of Chancellor will also be key. Ed Miliband is currently seen as the most likely candidate, and while parts of his policy agenda, notably net zero, have raised concerns among businesses and voters, the role will be as much about reassuring markets as shaping policy.

So far, gilt markets have been cautious rather than alarmed. Thirty-year gilts sold off by 7 basis points this week, but by less than US Treasuries, and they strengthened over June. Markets appear to be giving Burnham the benefit of the doubt, although some political risk is already reflected in longer-dated gilt yields.

For clients, our view is unchanged: the extra yield on longer-dated gilts does not yet compensate for the added uncertainty. We prefer shorter-dated gilts, where we see better value and more potential benefit if the economy slows.

The broader fiscal backdrop remains challenging. A reported £5bn defence spending gap, heavy gilt issuance and the BoE’s continued reduction of its gilt holdings all mean Andy Burnham and his new Chancellor will need to tread carefully.

Sharp jobs miss eases hiking pressure

June US nonfarm payrolls rose just 57k, well short of the 113k consensus, with prior months revised lower. The unemployment rate fell to 4.2% as labour force participation dropped. The miss prompted an immediate dovish repricing with two-year Treasury yields falling around 8 basis points to near 4.1% before recovering modestly into the close while the US dollar fell more than 0.5% against sterling on the day.

Taken together, softer labour market data and lower energy prices suggest the inflation backdrop facing central banks is becoming less challenging, offering some relief even as geopolitical tensions remain a key source of uncertainty.

Iran talks take place although situation remains fragile 

US-Iran indirect talks in Qatar delivered little tangible progress this week, although the continuation of dialogue remains a positive development and helped ease oil prices. Key sticking points remain unresolved, including shipping through the Strait of Hormuz, Iran's nuclear programme and the release of frozen assets. The contrasting rhetoric from both sides was notable, with Donald Trump claiming that the "denuclearisation of Iran is moving along very well", while Iranian officials maintained that discussions were centred on frozen assets and US compliance with June's Memorandum of Understanding.

While shipping flows through Hormuz have improved, the situation remains fragile and mine-clearing operations will continue to pose logistical challenges even if diplomatic progress is made. Talks are expected to resume after the funeral period for Ayatollah Ali Khamenei, which concludes on 9 July.

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The week ahead

ISM Services Purchasing Managers Index (PMI)

On Monday this will be the first major activity read of the week and is more skewed towards larger companies than the S&P PMIs. A deterioration in services would add to the case that the recent labour market weakness seen in the data is broadening.

Federal Open Market Committee minutes

After the weak payrolls print pushed the first fully-priced hike to December, the minutes on Wednesday will reveal how divided the committee was at the June meeting and whether the hawkish framing was consensus or driven by Fed Chair Warsh.

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