Markets in June saw a marked improvement in investor sentiment as geopolitical tensions eased following the announcement of a ceasefire between the US, Israel and Iran. The reopening of the Strait of Hormuz significantly reduced fears of a prolonged disruption to global energy supplies, allowing markets to unwind much of the geopolitical risk premium that had dominated throughout the previous three months. While the ceasefire remains fragile, investors increasingly focused on improving fundamentals rather than worst-case geopolitical outcomes.

Equity markets responded positively to the improved backdrop. Global equities reached fresh highs during the month, led once again by the United States and Emerging Markets where continued strength in corporate earnings, particularly within AI-related technology companies, supported investor confidence. European equities also performed well as lower energy prices eased concerns over corporate profitability and consumer spending. Market leadership broadened modestly beyond large-cap technology, with cyclical sectors benefiting from expectations that lower energy costs would support economic activity through the second half of the year.

Bond markets stabilised following several months of heightened volatility. As oil prices retreated towards pre-conflict levels, inflation expectations moderated, allowing government bond yields to decline from their recent highs. Investors remained cautious, however, recognising that fiscal deficits and elevated government borrowing continue to place upward pressure on longer-dated yields. Central banks maintained a measured approach, acknowledging that while the immediate inflationary threat from energy prices had diminished, underlying services inflation and wage pressures remain above target in many developed economies.

Commodity markets experienced the largest reversal. Brent crude fell sharply as shipping traffic through the Strait of Hormuz normalised and concerns over supply disruption eased. Gold also weakened as demand for traditional safe-haven assets declined alongside improving geopolitical sentiment.

Economic data during the month continued to present a picture of slow but resilient global growth. Labour markets remained relatively healthy across developed economies, while inflation data suggested that the recent energy shock may prove less persistent than initially feared. The moderation in eurozone inflation and easing energy costs provided encouragement that the broader disinflationary trend remains intact, although policymakers continue to emphasise that monetary policy decisions will remain data dependent.

Overall, June represented a meaningful improvement in market conditions after several months dominated by geopolitical uncertainty. The easing of Middle Eastern tensions removed a significant headwind for financial markets, allowing investors to refocus on corporate earnings, economic fundamentals and the outlook for monetary policy. Nevertheless, valuations remain elevated, particularly in US equities, while fiscal challenges, persistent core inflation and the possibility of renewed geopolitical tensions suggest that volatility is unlikely to disappear entirely. Markets therefore enter the second half of the year on a firmer footing, but with relatively little margin for disappointment should either economic or geopolitical conditions deteriorate.