Markets closed the week on a mixed note, with geopolitical tensions in the Middle East weighing on sentiment.
While global investors are cautious amidst escalating tensions in the Middle East, markets showed a degree of resilience, especially in the UK, where the FTSE 100 fell 0.86% on the week. That compares favourably with wider European indices, such as the STOXX Europe 600, down 1.54%. The FTSE’s relatively muted decline is a reminder of its defensive composition, with strong representation from energy and consumer staples sectors that tend to hold up during periods of volatility. As always, diversification and a long-term perspective remain essential in navigating periods of uncertainty.
In the U.S., markets were mixed in a holiday-shortened trading week. The S&P 500 slipped modestly. Central banks remain in a holding pattern. The Federal Reserve kept interest rates steady at 4.25–4.5%, as expected, and Fed Chair Jerome Powell reiterated the economy is in a “solid position,” though uncertainty remains elevated.
On the economic front, U.S. retail sales fell for a second consecutive month in May, suggesting a softening consumer backdrop. However, core sales used in GDP calculations rose 0.4%, offering some reassurance.
The Bank of England held interest rates at 4.25% on Thursday, as expected. Governor Andrew Bailey noted that rates remain on a “gradual downward path,” but cautioned that “the world is highly unpredictable”. Markets and economists had largely ruled out a cut amid mixed global signals. Bailey highlighted early signs of a cooling labour market in the UK, adding: “We will be looking carefully at the extent to which those signs feed through to consumer price inflation.”
UK retail sales fell 2.7% in May, the sharpest monthly decline since 2023, driven by a 5% drop in food sales and broader sector weakness. While this suggests a possible pause in the UK’s economic momentum after a strong start to the year, markets may interpret the data as a sign that the Bank of England could take a more measured approach to rate cuts.
News that the U.S. joined Israel in a direct strike on Iranian nuclear sites marked a sharp escalation in regional tensions. Iran’s parliament has reportedly voted to close the Strait of Hormuz, a key global oil route, but the move still requires approval from the Supreme National Security Council. Shutting the Strait would be a last resort, as it is vital to Iran’s struggling economy and risks straining ties with China, its main oil buyer. What happens next is uncertain, but our diversified portfolios are built to withstand geopolitical shocks. Markets are forward-looking, and recent volatility reflects headline-driven reactions more than a shift in global economic fundamentals.
