Equities show remarkable resilience

Global stock markets showed surprising resilience, buoyed by a mix of easing geopolitical tensions, dovish signals from the US Federal Reserve, and a continued rally in mega-cap technology stocks. Despite looming tariff threats from the Trump administration, investor sentiment has remained cautiously optimistic, with major indices posting modest gains. Indeed, the FTSE reached a new record high on Thursday, as confidence grew that Donald Trump would not act on his tariff threats.

Despite the geopolitical noise, investor sentiment remains broadly positive. The VIX, Wall Street’s volatility index – dubbed the “fear gauge” – remains near yearly lows, and fund flows into equities have continued. However, volatility could return rapidly if trade talks falter or inflation surprises on the upside.

The cost of UK government borrowing has fallen, partly reversing a surge prompted by Chancellor Rachel Reeves’ recent emotional appearance in the House of Commons. Financial markets appeared to back the Chancellor, concerned that if she were to leave her post, control over the government’s finances could weaken.

The FTSE 100 was up 1.5% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading 0.3% ahead.

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Donald Trump

The biggest geopolitical overhang remains President Donald Trump’s already-delayed 1 August reciprocal tariff deadline. While the policy has rattled foreign governments, investors appear confident that most countries will strike last-minute deals to avoid sweeping levies. Equity market gains reflected optimism that the economic fallout – at least in the short term – will be limited, and that there may be some form of capitulation from the Trump administration. For more details, see Markets shrug off Trump tariff news.

While equities in developed markets held firm, emerging economies showed signs of stress. Brazil’s stock market dipped following Mr Trump’s announcement of a 50% tariff on Brazilian goods. The move also impacted coffee prices, which rose in response to the tariff threat—issued in retaliation for what Mr Trump called a “witch hunt” against former president Jair Bolsonaro. Brazil is the world’s largest producer of arabica beans, and the US is one of its biggest buyers. The tariff threat compounds an already volatile coffee market, where prices have been elevated due to poor harvests in Brazil and Vietnam, as well as climate-related disruptions. Arabica futures had already spiked to more than $4.40/lb earlier this year – more than double their 2024 levels – before easing slightly on improved harvest forecasts. If the tariffs are enacted on 1 August, they could reignite a fresh rally, pushing prices towards or even beyond the $5/lb mark, with downstream effects on everything from café menus to supermarket shelves. The outlook remains highly uncertain, hinging on both geopolitical developments and weather conditions in key growing regions.

Copper prices hit a record high in the US after Mr Trump announced he would impose a 50% tariff on the industrial metal, a key input in the manufacturing of many “green” technologies. US copper futures jumped by more than 10% to $5.682 per pound following the tariff threat – an all-time high – before falling back to around $5.49.

The Pentagon struck a landmark deal with MP Materials, investing $400 million to become the company’s largest shareholder. The multibillion-dollar public-private partnership aims to secure America’s rare earth magnet supply chain. The agreement will fund the construction of a second domestic magnet manufacturing facility and expand processing capabilities at MP’s Mountain Pass mine in California – the only operational rare earth mine in the US. The deal includes long-term offtake agreements and price floor commitments, positioning MP Materials as a strategic linchpin in the production of critical components used in F-35 fighter jets, submarines, and electric vehicles. This unusual move is a direct response to China’s dominance in rare earths, which currently supplies more than 70% of US imports. The Pentagon’s equity stake signals a new model of industrial policy, blending market incentives with national security imperatives.

Federal Reserve Chair Jerome Powell came under fire on a different front, as Donald Trump intensified efforts to pressure him into resigning early. Office of Management and Budget Director Russell Vought accused Mr Powell of overseeing an “ostentatious” refurbishment of the Federal Reserve’s headquarters, claiming the project is $700 million over budget and includes unauthorised modifications such as rooftop gardens and VIP dining rooms. Mr Powell has denied the allegations, stating that many of the criticised features were part of outdated plans and that the renovation remains compliant with federal oversight requirements.

Economics

The UK economy unexpectedly shrank by 0.1% in May, marking the second consecutive monthly contraction and raising fresh concerns about the country’s economic momentum. The Office for National Statistics (ONS) reported that, while the services sector showed marginal growth, declines in industrial production and construction dragged overall output into negative territory. The figures defied economists’ expectations of a modest 0.1% expansion and follows a 0.3% contraction in April, suggesting that the strong start to the year – fuelled by a rush to beat US tariffs and a housing tax break – may well have been short-lived. With the Bank of England forecasting just 0.25% growth for the second quarter, the data casts doubt on whether the UK can avoid stagnation – or even a technical recession – especially as global trade tensions and domestic inflationary pressures persist.

UK retail footfall declined by 1.8% year-on-year in June, according to the latest data from the British Retail Consortium and Sensormatic, as extreme weather conditions and fragile consumer confidence kept shoppers away from high streets and shopping centres. The figures mark a slight deterioration from May’s 1.7% drop, with high streets hit hardest – down 3.0% – as heatwaves gave way to thunderstorms, discouraging shoppers.

Market sentiment received a boost from the Federal Reserve (Fed), which reiterated its cautious stance on interest rates. Minutes from the March rate-setting Federal Open Market Committee (FOMC) meeting showed that policymakers were leaning towards gradual rate cuts, citing slowing inflation and global uncertainty. Fed officials, including Christopher Waller and Mary Daly, echoed this sentiment in public remarks, reinforcing expectations of a rate cut later this year. US 10-year Treasury yields dipped slightly in response, reflecting investor anticipation of looser monetary policy.

US economic indicators released this week painted a mixed picture. US initial jobless claims came in at 233,000, slightly below expectations, suggesting continued labour market strength. However, consumer credit growth slowed in May, indicating potential caution among households.

In Europe, inflation data from Germany and France showed price growth stabilising at around 2%, reinforcing expectations that the European Central Bank will hold rates steady for now.

Geopolitics

Geopolitical tensions eased modestly this week as there appeared to reflect a broader, if fragile, shift towards dialogue over confrontation:

• Saudi Arabia and Iran reaffirmed their commitment to diplomacy during high-level talks in Riyadh. Crown Prince Mohammed bin Salman and Iranian Foreign Minister Abbas Araghchi expressed support for a permanent ceasefire in Gaza and broader regional stability, signalling a thaw in relations between two long-standing rivals.
• The US and China made incremental progress in trade negotiations, with both sides reportedly agreeing to a provisional framework that could delay the implementation of new tariffs. The news calmed investor nerves and lifted market sentiment.
• The ceasefire between Israel and Iran – brokered with Qatari support – continued to hold, prompting the G7 to issue a joint statement welcoming de-escalation efforts and urging renewed nuclear talks with Tehran.

There were three key developments this week that reflected broader geopolitical trends – particularly the erosion of post-Cold War diplomatic norms, the rise of militarised nationalism, and the strategic recalibration of alliances in response to US and Chinese influence.

• Japan and the Philippines moved closer to a landmark defence agreement involving the transfer of six Abukuma-class destroyers. The deal is aimed at strengthening Manila’s presence in the contested South China Sea and is likely to provoke Beijing, while deepening US-aligned security cooperation in the region.
• Russia formally recognised the Taliban government in Afghanistan, signalling a potential shift in Central Asian diplomacy and raising concerns about the normalisation of militant regimes.
• Tensions flared between Thailand and Cambodia over a long-standing border dispute, prompting fears of military escalation between the two ASEAN neighbours.

Companies

Shell’s shares fell after its second-quarter trading update painted a mixed picture, with a weaker-than-expected performance in key segments offset by stronger refining margins. The energy giant flagged a notable decline in upstream production—driven by scheduled maintenance and the sale of its Nigerian subsidiary—as well as lower output in its Integrated Gas division. While refining margins improved significantly, the Chemicals and Products segment is expected to operate below break-even due to unplanned outages and reduced utilisation. Oil and gas trading profits are forecast to be “significantly lower” than in the first quarter, adding pressure to overall earnings. More detailed second-quarter figures are due on 31 July.

BP’s second-quarter trading update also revealed a mixed performance, as the company flagged asset write-downs of up to $1.5bn and warned of weaker earnings due to lower oil and gas price realisations. While upstream production rose—driven by gains in US shale operations and modest growth in gas and low-carbon energy—realised prices in both segments fell, particularly in the Gulf of Mexico and United Arab Emirates, dragging down profitability. On a more positive note, BP reported stronger refining margins and robust oil trading results, alongside seasonally higher fuel volumes in its customer segment. Net debt was slightly reduced, offering some reassurance to investors. The full earnings report is due on 5 August.

Vistry Group’s latest trading update revealed a cautious but steady performance in the first half of 2025, as the UK housebuilder reaffirmed its full-year guidance despite a challenging market backdrop. The company reported a modest increase in completions and highlighted strong demand in its Partnerships division, which focuses on affordable housing and public sector projects. However, private sales remained subdued amid high mortgage rates and economic uncertainty. The update underscores the sector’s bifurcation—where affordable housing demand remains robust while private market activity lags. Encouragingly, the latest residential market survey from the Royal Institution of Chartered Surveyors showed buyer demand moving out of negative territory for the first time since December. The net balance for new buyer enquiries rose to +3, a significant improvement from May’s -22. Agreed sales also improved notably, to -3 from -25 a month earlier.