Alastair Power, Investment Research Manager
- How are geopolitics still impacting the markets?
- What is happening to interest rates?
- Why artificial intelligence firm performance has lagged
3 min read
Investors have generally failed to see the quiet summer period which many may have been seeking. Geopolitics has remained at the forefront, alongside key economic updates around growth and inflation, central bank activity, and artificial intelligence (AI) supply chain performance.
Ongoing disruption in the Strait of Hormuz caused oil prices to rise through July, benefitting both UK oil majors, BP and Shell, whose share prices recovered some of the ground lost in preceding months. While energy price volatility had been met with renewed inflationary concerns, especially earlier in the year, recent data releases revealed a more resilient economy than many may have expected.
Japan, UK, EU and US: How have interest rates and inflation shifted recently?
The July inflation release from the Office for National Statistics (ONS) revealed a Consumer Price Index (CPI) annual rate of inflation of 3.1% in the 12 months to July 2026, an increase on the year to June 2026 but down from 3.4% in March. This likely relieved some concerns around inflation persistence and supported the Bank of England’s Monetary Policy Committee (MPC) decision to hold interest rates at 3.75% at its July 2026 meeting.
Across other key central banks in the US, European Union (EU), and Japan, policy rates remained on hold. The US Federal Reserve voted 9-3 in favour of the action, with reiterated commitments to bringing inflation down to the 2% target level. In the EU, the three key interest rates remained as they were, having raised rates in June in response to inflationary pressures. In Japan, the decision to hold rates steady was expected. However, ongoing concerns around a depreciating currency and inflation moving ahead of the 2% target could result in an interest rate hike later in the year.
Why artificial intelligence firm performance has lagged
The performance of companies within the artificial intelligence (AI) ecosystem remained the other dominant theme. Having driven significant upside performance across major developed and emerging markets, related companies wobbled through late June and July with the global semiconductor index declining 30% from peak to trough. Performance drivers have been more closely linked to unwinding of leveraged trades and crowded positioning, rather than deteriorating earnings within the sector.
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Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of publication but may have changed at the point of reading.