Oil price jump stokes inflation fears

Equity markets slipped and the oil price surged as Donald Trump said he was considering joining Israel in military action against Iran. Escalating tensions between Iran and Israel are threatening to disrupt shipping through the world’s most vital energy corridor – the Strait of Hormuz.

Central bankers were busy – with interest rate decisions from the US, UK, Japanese and Swiss central banks. The situation with Iran complicated the issue as any long-lived rise in the oil price has negative consequence for inflation.

The FTSE 100 was down 0.4% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading up 0.2%.

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Economics

It was a big week for central bankers, with interest decisions from the Federal Reserve, Bank of England, Bank of Japan and the Swiss National Bank.

The Federal Reserve left its benchmark interest rate unchanged at 4.25% to 4.5% for the fourth consecutive meeting, citing persistent inflation and economic uncertainty. Chair Jerome Powell, speaking at the post-meeting press conference, emphasised a cautious, data-driven approach, resisting mounting political pressure to cut rates. “Inflation has come down a great deal but remains somewhat above our 2% target,” Powell said, noting that while the labour market remains strong, recent data shows mixed signals in consumer sentiment and business investment. The Fed’s updated projections now include two potential rate cuts before the end of 2025, down from three in March, reflecting a more measured outlook. Mr Powell acknowledged that tariffs and geopolitical tensions are complicating the inflation picture, with recent swings in gross domestic product (GDP) data partly attributed to businesses stockpiling imports ahead of expected trade barriers.

Ahead of the Bank of England’s decision, the UK’s inflation rate edged down slightly in May but remains uncomfortably high. The Consumer Prices Index (CPI) rose by 3.4% in the 12 months to May 2025, down marginally from 3.5% in April. Despite the slight decline, inflation remains well above the Bank of England’s 2% target. This complicates the case for further interest rate cuts, which markets had been anticipating earlier this year. The largest downward pressure came from falling transport costs, particularly fuel. However, this was offset by rising prices in food, furniture, and household goods, suggesting that underlying price pressures remain sticky. Core CPI, which strips out volatile items like energy and food, fell to 3.5% from 3.8%, but remains high enough to keep policymakers cautious. The Bank of England therefore kept interest rates on hold at 4.25%.

The Bank of Japan held its benchmark interest rate steady at 0.5%, in line with market expectations, while signalling a more cautious approach to tightening monetary policy amid rising global trade tensions and domestic economic fragility. The central bank also announced it would slow the pace of its Japanese Government Bond (JGB) tapering, reducing quarterly purchases by ¥200 billion starting April 2026 – down from the current ¥400 billion. The move reflects growing concerns over the impact of US trade policy and geopolitical instability on Japan’s export-driven economy.

Zero interest rates are back. In a bold move that underscores the mounting pressures on Switzerland’s export-driven economy, the Swiss National Bank (SNB) cut its benchmark interest rate to zero, marking its sixth consecutive rate reduction and the lowest level among major central banks. The SNB is grappling with a potent mix of deflationary pressures, a surging Swiss franc, and heightened global economic uncertainty. The Swiss franc, long considered a safe-haven currency, has appreciated sharply in recent months, gaining nearly 2% against a basket of currencies this year alone. Investor anxiety over US trade disruptions and a weakening dollar has driven capital into Switzerland, pushing the franc to decade-high levels against the euro and the dollar. This surge has had a chilling effect on Swiss inflation, which turned negative in May for the first time in four years. The move also risks reigniting tensions with the US, which previously labelled Switzerland a currency manipulator during Trump’s first term.

China’s export growth slowed sharply to 4.8% year-over-year in May, with exports to the U.S. plunging 34.5% – the steepest drop since early 2020. This has led to deflationary pressures in Europe as China redirects surplus goods. Domestically, China faces persistent deflation, with producer prices down 3.3% annually.

Russia is on the verge of a recession, its economy minister said, the first public admission that the country’s war economy is starting to cool three years after President Vladimir Putin ordered the full-scale invasion of Ukraine. Maxim Reshetnikov said at the president’s flagship economic conference in St Petersburg that “the numbers show [the economy] is cooling off”. He also said that, judging by business sentiment, we’re basically already on the brink of falling into a recession.

Geopolitics

Global oil prices rose sharply as escalating tensions between Iran and Israel threaten to choke off the world’s most vital energy corridor – the Strait of Hormuz. Brent crude jumped 3.9% to $77.15 per barrel over the week, its highest level since the Ukraine war, as fears mount that Tehran could follow through on threats to block the narrow waterway, through which nearly 20% of global oil flows. The crisis intensified after Iranian state media aired calls from lawmakers urging the closure of the strait in retaliation for Israeli airstrikes on Iranian military and nuclear sites. The situation has been further inflamed by US President Donald Trump, who issued a blunt demand for Iran’s “unconditional surrender” and warned that America’s patience is “wearing thin”. UK, French and German foreign ministers will hold talks with their Iranian counterpart in Geneva today as part of efforts to end the conflict. It comes after the White House says Donald Trump will decide in the next two weeks whether the US will join Israeli strikes on Iran. President Trump has delayed making a decision as he thinks there's a "substantial chance" of talks succeeding, according to his press secretary.

The Iran-Israel conflict – what are the implication for global markets?

Section 899, part of the “One Big Beautiful Bill Act” (OBBBA) that passed the US House in May 2025, is now being reviewed by the Senate. If enacted, it would empower the US Treasury to impose additional, far-reaching taxes on foreign investors and companies – especially if they are from countries that the US see as unfairly taxing American businesses. What is section 899 and what could it mean for investors?

Efforts to broker a peace deal between Ukraine and Russia remain deadlocked, with recent talks in Istanbul collapsing after less than an hour amid escalating military tensions and irreconcilable demands. Russia has presented a sweeping set of conditions, including Ukraine’s withdrawal from four occupied regions, the destruction of all Western-supplied weapons, and formal recognition of Crimea and other annexed territories as Russian - a stance Kyiv and its allies have flatly rejected.

The 2025 St Petersburg International Economic Forum, once dubbed “Russia’s Davos,” opened with fanfare but struggled to deliver the investment punch the Kremlin had hoped for. President Vladimir Putin used the platform to promote a vision of a “multipolar world” and economic resilience, but the forum was marked more by symbolism than substance. Delegates from more than 100 countries attended, including high-level representatives from China, Bahrain, and even the Taliban – recently removed from Russia’s list of terrorist organisations. However, the absence of major Western investors and chief executives underscored Russia’s continued economic isolation amid sanctions and the ongoing war in Ukraine.

Companies

The healthcare sector, long considered a defensive stronghold in turbulent markets, is facing a rare convergence of headwinds. From action on drug pricing to the looming threat of new trade tariffs under a second Trump administration, the industry is navigating a period of uncertainty that is reshaping investor sentiment and strategic planning. Why the traditionally defensive healthcare sector is currently under pressure.

Hays issued a cautious earnings update, forecasting a £45m pre-exceptional operating profit for fiscal 2025 – below the £50m market consensus – as global demand for permanent recruitment continues to weaken. The staffing giant reported a 9% year-on-year drop in like-for-like net fees in the fourth quarter, citing subdued client and candidate engagement amid persistent macroeconomic uncertainty. While temporary and contracting activity remained more stable, the company’s fixed cost base limited profitability. Germany, Hays’ largest market, saw declines across all segments, while the UK and Ireland posted a 13% fall in net fees. Asia and EMEA also reported contractions, though North America bucked the trend with 5% growth.

Rio Tinto agreed to pay $138.75m to settle a long-running class-action lawsuit accusing the mining giant of misleading investors over delays and cost overruns at its flagship Oyu Tolgoi copper-gold project in Mongolia. The lawsuit, filed in New York by shareholders of Turquoise Hill Resources – then majority-owned by Rio – alleged the company concealed serious construction issues between 2018 and 2019, despite publicly claiming the project was “on plan” and “on budget”. The underground expansion of Oyu Tolgoi, initially budgeted at $5.3bn, ballooned to nearly $7bn and was delayed by more than two years due to unexpected ground conditions. Whistleblower testimony and internal documents suggested Rio was aware of the problems well before disclosing them to investors. While Rio Tinto denies any wrongdoing, it said the settlement avoids the uncertainty and cost of prolonged litigation.

Whitbread reported a weaker-than-expected full-year performance, with mounting cost pressures and softer demand in its core UK market. The Premier Inn owner posted revenue of £2.93bn, down 1.1% year-on-year, while net income slid 19% to £253.7m, driven by a sharp drop in profit margins – from 11% to 8.7%. In Germany, Whitbread said it was "trading strongly" and that it remained "on course" to deliver profitability in 2026 after accommodation sales rose 15% in the first quarter, while food and beverage sales were 22% higher.

Equipment rental giant Ashtead Group reported record rental revenue for the year ending April 30, 2025, despite a modest dip in overall profit, reflecting a resilient performance amid a challenging macroeconomic backdrop. The company posted rental revenue of $9.98 billion, up 4% year-on-year, driven by strong demand in North America and continued expansion under its “Sunbelt 4.0” strategy. However, total revenue declined 1% to $10.79bn, largely due to a $391m drop in equipment sales.

Informa delivered a robust trading update ahead of its AGM, reporting 9.3% underlying revenue growth in the first five months of 2025, driven by strong performance in its B2B Live Events and Academic Markets divisions. The conference and events group highlighted broad international strength, particularly in India, the Middle East, and Africa, while its academic segment saw 13.7% growth, boosted by licensing deals with AI firms. Despite softness in its TechTarget unit, Informa reaffirmed full-year guidance of 5%+ revenue growth and 10% adjusted earnings growth, with £2.8bn already booked or committed – representing 70% of its annual target.

AO World delivered a mixed set of full-year results, with revenues rising 9.4% to £1.14bn – beating analyst expectations – but net income plunging 61% to £9.7m as profit margins came under pressure. Earnings per share fell sharply to 1.7p, missing forecasts by nearly 70%, as higher operating costs and a goodwill impairment in its mobile phone division weighed on the bottom line. Despite the earnings miss, the company attracted 650,000 new customers and saw over 60% of orders from repeat buyers, buoyed by strong performance in its core electricals business and the success of its Five Star membership programme. Looking ahead, management warned of cost headwinds in the current year, including higher national insurance contributions and losses from its musicMagpie acquisition, but maintained a positive medium-term outlook driven by customer loyalty and margin expansion opportunities.

Texas Instruments has announced plans to invest more than $60bn in US-based semiconductor manufacturing, marking the largest such commitment in American history. The investment will fund seven fabrication plants across mega-sites in Texas and Utah, supporting more than 60,000 jobs and significantly expanding domestic production of analogue and embedded processing chips. The move aligns closely with the Trump administration’s push to reshore critical supply chains and reduce reliance on foreign chipmakers. The initiative is backed by major US companies such as Apple, Ford, and Nvidia, which rely on Texas Instrument’s chips for everything from smartphones to satellites.