Iran frictions unlikely to become a game changer
4 mins to read this article
What you need to know
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Last week’s US strikes in Iran caused some market volatility, but inflation data and central bank signals are still the key drivers for interest rates, markets and portfolio positioning.
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We recently reduced our equity exposure, locking in gains while keeping portfolios broadly diversified.
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Oil prices briefly spiked due to the US-Iran tensions, but fell back, reducing risk of a sustained inflation shock.
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Despite that, bond yields moved higher due to concerns of rising inflation, while equities held steady after earlier gains.
US-Iran conflict
Geopolitical tensions persist, but diplomacy remains in focus
Geopolitical flare-ups continue to create periods of volatility. In response, we have modestly reduced our equity exposure while maintaining broad diversification across portfolios. You can read more detail on recent portfolio changes in our latest Counterpoint.
Last week’s US strikes in Iran, following attacks on ships in the Strait of Hormuz, briefly pushed Brent crude prices from slightly above USD 70 to USD 80 per barrel. Prices eased soon somewhat after the US Administration confirmed that diplomatic talks with Iran would continue, suggesting the market does not expect a lasting disruption to supply. However, following renewed attacks over the weekend, Brent is approaching USD 80 again at the time of writing.
Lower inflation remains a key political priority in the US ahead of the 3 November midterm elections. A sustained rise in oil prices could add to inflation pressures and complicate the policy backdrop for Donald Trump. While further tensions in the Middle East may trigger short-term volatility in energy markets, we do not expect oil prices to rise sustainably towards USD 100 per barrel or higher.
Despite movements in the oil market, global equities have so far largely been flat to slightly up this month, holding on to their strong gains from the first half of the year. In fixed income, renewed inflation concerns have pushed 10-year government bond yields above 3% in Germany and above 4.5% in the US.
Inflation
US data under the spotlight
Tomorrow’s US inflation release should give a clearer view of whether May’s energy-driven rise to 4.2% has begun to ease. Following the sharper-than-expected decline in European inflation, a reading below 4% appears plausible.
The US Federal Reserve (Fed) will be closely watching the data ahead of its meeting on 29 July. Minutes from the previous meeting suggest that policymakers remain open to keeping interest rates unchanged or lowering them if inflation continues to moderate. However, another rise in inflation could lead to rate hikes.
We still think it’s possible that the Fed will deliver one rate hike later this year. By contrast, we think the European Central Bank (ECB) will hold rates this year including at its July meeting, as Eurozone inflation fell to 2.8% in June, reducing the urgency for further action.
China’s June inflation data also warrant attention. Consumer prices eased to 1% year-on-year, while producer prices rose by 4.1%, partly reflecting stronger demand linked to Artificial Intelligence (AI). This could mean that global goods prices start to rise as China’s manufacturing sector continues its modest recovery.
This week
Earnings season takes centre stage
The second-quarter earnings season begins on Tuesday, with JPMorgan and UnitedHealth among the first major US companies to report, while ASML opens the season in Europe.
Analysts forecast year-on-year earnings growth of around 22% for US companies and 11% in Europe. While this leaves scope for surprises at company level, aggregate earnings growth is still expected to remain broadly constructive, especially in the US.
Share price reactions may be more pronounced where expectations are missed or exceeded, although we don’t see any clear evidence at this stage of a broader deterioration in the earnings trend.
On the economic front, US producer price data should give further insight into inflation dynamics and reflect the recent easing in energy prices. Retail sales and the University of Michigan consumer sentiment index may also show signs of modest improvement.
In China, second-quarter GDP growth is likely to slow from 5% in the first quarter to around 4.5%. June activity data may continue to show resilient, export-driven industrial production alongside weaker domestic consumption.
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Information correct as of 13 July 2026.
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