June 2026 was a reminder that macro outcomes are still being set at the intersection of geopolitics, energy and central bank credibility. Two developments dominated the month’s narrative for global investors: signs of a more durable U.S.–Iran ceasefire that could normalize flows through the Strait of Hormuz, and a U.S. Federal Reserve (Fed) meeting under new Fed Chair Kevin Warsh. The two events are interlinked, as the inflation outlook is being shifted by developments in the Middle East, nudging the Fed’s policy considerations.

The Strait of Hormuz: Reopening will take time

U.S. President Trump announced that a deal has been reached to extend the ceasefire and reopen the Strait of Hormuz. Importantly, this was subsequently confirmed by Iran’s deputy foreign minister, as well as Pakistan and Qatar, the mediators. Both sides are still negotiating, and there have been attacks on ships in the Strait. Nonetheless, investors still believe that reopening the Strait would reduce the most acute tail risk to global energy supply and petrochemical logistics.

That said, the focus now shifts from “deal risk” to “execution risk.” Even if the Strait is formally reopened, insurers and shipping companies must be convinced the route is safe. Insurance premiums may remain elevated, which would keep a wedge between “reopening” and true normalization in delivered energy costs. Beyond that, production, refining, and logistics capacity are unlikely to snap back immediately—weeks rather than days is a reasonable base case, and two to three months is plausible for broader normalization. If facilities were damaged during the conflict, some repairs could take substantially longer. In parallel, governments and corporates may seek to rebuild inventories and strategic reserves as an insurance policy against renewed instability, which can also slow any retracement in energy prices.

For the global economy, a reopened Strait is clearly a positive: Fewer disruptions reduce the risk of a stagflationary mix of higher inflation and weaker growth. However, investors should resist the temptation to treat this as an “all clear” that returns energy prices to pre-conflict levels quickly. The pass-through from energy to broader inflation can be lumpy and delayed. For central banks, this relief is meaningful. If energy prices remain calm on a sustained basis, it reduces the risk that a temporary supply shock becomes embedded in wages and inflation expectations. It also gives policymakers more room to “wait and see,” especially while growth is still holding up.

June FOMC meeting: Hawks circling

At his first meeting as Fed Chair, Kevin Warsh led the Federal Open Market Committee (FOMC) to a unanimous decision to hold the federal funds target range at 3.50%–3.75%. The decision itself was notable for restraint: The market had viewed Warsh as more inclined to ease, yet inflation remains above target and the committee opted for patience. More striking was how the Fed communicated. The statement was essentially cut in half versus prior meetings, stripping out much of the explicit reaction function and forward guidance. It also removed the prior easing-bias language, “the extent and timing of additional adjustments,” aligning with the more hawkish tone that had been emerging.

In the pared-down assessment, growth was described as “solid,” with a nod to strong productivity growth and capital investment—consistent with Warsh’s optimism about artificial intelligence (AI)-driven productivity. The labor market language improved, suggesting better balance: Job gains have kept pace with workforce growth. On inflation, the committee attributed the rise in prices to the energy supply shock while reaffirming its commitment to price stability.

The Summary of Economic Projections added the month’s key tension: Growth was revised slightly lower (to 2.2% from 2.4% for this year), unemployment edged lower (to 4.3% in 2026), but inflation forecasts moved materially higher—headline inflation to 3.6% (from 2.7%) and core inflation to 3.3% (from 2.7%), with inflation not reaching target until 2028. The median rate path implied one hike this year, then cuts in 2027 and 2028, and the distribution showed a split committee (nine of the 18 seeing at least one hike this year). Warsh did not submit his own forecasts, but he was explicit that the 2% inflation target is not changing.

Warsh also announced five task forces, covering Fed communications, the balance sheet framework, source data quality, productivity and jobs (with an explicit AI focus), and inflation measurement frameworks (including greater use of trimmed-mean concepts). These could reshape process and messaging, even if the Fed’s dual mandate and reliance on the policy rate remain intact.

Warsh’s preference to be more guarded when communicating with the market could potentially raise market volatility, especially as he studies possible changes in the Fed’s policy framework and balance sheet management. For now, we expect policy rates to remain steady for the rest of this year, with headline inflation stabilizing through the summer, even as the market is pricing in a hike in 4Q 2026.

A rotation toward non-tech

The combination of the ceasefire in the Middle East and a more hawkish Fed stance has prompted a rotation toward some of the market’s laggards. As the global economy seeks to avoid stagflation, cyclically sensitive sectors have enjoyed some recovery. Meanwhile, the rise in short-term U.S. government bond yields, with the 2-year yield up 80 basis points (bps) since the U.S.–Iran conflict began, and up as much as 20 bps in June, has pressured growth stocks. The sizable investment spending by tech companies in data centers and AI-related development also makes them sensitive to borrowing costs.

There are also increasing questions over the speed and scale of monetization for AI hyperscalers. There is no doubt that consumers and businesses are adopting AI. That said, Chief Technology Officers are not the only decision-makers. Chief Financial Officers need to sign off too, and the cost of deploying AI has to be a consideration. AI hyperscalers are also rationing compute resources as demand outpaces data center capacity. As investors work through these dynamics, short-term market volatility is likely to continue, underscoring the importance of diversification and rebalancing in portfolio construction. Rebalancing simply means revisiting our portfolios to see whether strong equity returns in recent months have pushed the stock-bond allocation out of line with what is suitable for our investment objectives and risk appetite.

For diversification, the stabilization in the energy market offers a welcome opportunity to broaden allocations to cyclical sectors, as mentioned above. Investors should also revisit fixed income. The strong equity returns in 1H 2026 mean that single-digit returns from bond yields may not look that competitive. However, equity returns are likely to ease back toward long-term averages, and corporate bonds and selected emerging market debt should become attractive once again, especially considering their relatively lower volatility than equities. A steady global economy should help keep corporate default rates low, supporting corporate credit.

Global economy

• Kevin Warsh’s first meeting as Fed Chair delivered a hawkish hold, with the FOMC keeping rates at 3.50%–3.75% while removing forward guidance and the prior easing bias. The Fed described growth as solid and the labor market as balanced, but raised inflation forecasts sharply, with inflation not expected to return to target until 2028. The median dot now implies one hike this year, while Warsh also announced task forces on Fed communications, the balance sheet, data quality, AI’s productivity impact and the inflation framework.
  (GTMA P. 24, 25, 26, 27)
• The European Central Bank (ECB) raised the deposit rate by 25 bps to 2.25% and maintained a data-dependent, meeting-by-meeting stance. While the Governing Council acknowledged both inflation and growth risks from the energy shock, Lagarde sounded more concerned about inflation, highlighting elevated energy prices, broadening price pressures, and inflation returning to target only toward the end of 2027. Markets remain focused on whether the ECB delivers one more hike this year.
  (GTMA P. 17, 18)
• In China, May activity disappointed as retail sales, investment and home prices weakened, underscoring pressure from soft consumption and the property sector. Industrial production remained a bright spot, supported by strong exports, while unemployment edged lower to 5.1%. Inflation was mixed, with headline consumer price index (CPI) flat, softer core inflation, and higher producer price index (PPI). The strong year-to-date exports are helping offset weak domestic demand and are keeping Beijing’s 4.5%–5.0% growth target in reach.
  (GTMA P. 6, 7, 8, 9)
• The Bank of Japan (BoJ) raised the policy rate to 1.00% in June, with greater attentiveness to inflation concerns over growth, as the risks of falling “behind the curve” gradually builds. The BoJ also decided to pause its tapering plan and keep monthly purchases steady at Japanese yen (JPY) 2trillion per month from April 2027, showing caution against overly aggressive tightening. On fiscal policy, the government has called for over JPY 370trillion public-private growth investment in 17 strategic areas by FY 2040.
  (GTMA P. 14)

Equities

• Global equities were mixed in June, with the S&P 500 and Nasdaq finishing lower despite fresh record closes early in the month, while the equal-weight S&P 500 outperformed on renewed signs of market broadening. AI remained the key under-the-surface driver, but leadership rotated sharply. Semiconductors and memory stocks were all higher for the month, though they saw significant volatility, while the Magnificent 7 were sold off amid concerns around AI return on investment, rising memory costs and heavier equity supply. Industrials, healthcare, financials, utilities, real estate and staples outperformed, while communication services, energy, consumer discretionary and technology lagged.
  (GTMA P. 28, 29, 44, 47)
• Asian equities were broadly flat in June, with the MSCI Asia Pacific ex Japan index unchanged, though aggregate performance masked high volatility and sharp country-level dispersion. Japan and India outperformed, supported by falling oil prices and resilient macro conditions, while Taiwan posted modest gains and South Korea declined as extreme volatility in chip and AI-linked shares triggered trading halts and weighed heavily on the KOSPI.
  (GTMA P. 28, 35, 37)
• Greater China was mixed: Mainland markets rose, led by a surge in hardware and semiconductor-related shares amid AI infrastructure spending and Beijing’s self-sufficiency push, while Hong Kong underperformed sharply as internet and consumer-facing technology names came under pressure from weak consumption, AI capex concerns and company-specific headlines.
  (GTMA P. 35, 39)
• Elsewhere, Southeast Asian markets were mixed, with Indonesia notably weaker but the Philippines, Vietnam and Singapore higher, while regional currencies broadly weakened against a stronger U.S. dollar despite policy support from several central banks.
  (GTMA P. 31, 35)

Fixed income

• The U.S. Treasury (UST) yield curve twist-flattened over the month, with 2-year yields up 15 bps but 30-year yields down 5 bps. A set of robust May employment data and a hawkish outcome at the June FOMC meeting put more pressure on the short end of the curve than the long end. With the median projection from the latest SEP also pointing to potential rate hikes ahead, this prompted a similarly hawkish pricing in markets, with the Overnight Index Swap (OIS) suggesting a total of 37 bps in rate hikes by the end of this year.
  (GTMA P. 54, 55, 59)
• Credit spreads nudged wider over the month, despite intra-month volatility due to the ongoing developments in the Middle East conflict. As such, global investment grade and high yield bonds returned -0.4% and 0.2%, respectively, with spreads widening by 2 bps and 3 bps and remaining near the tighter end of the historical range.
  (GTMA P. 61, 62, 63)

Alternatives

• According to PitchBook data, the number of global private equity deals in 2Q26 is estimated to have increased to 5,672, up from 5,552 in the last quarter. Momentum on deal value stalled, however, with deal activity estimated to amount to USD 420billion in 2Q26, lower than USD 544billion in the last quarter. Exit activity in global private equity also slowed, with USD 275billion across 948 exits estimated in 2Q26, down from USD 343billion across 1,000 exits in the last quarter.
• As for global venture capital, 2Q26 deal activity is estimated at USD 228billion across 10,595 deals, below the USD 333billion across 11,574 deals in the last quarter. However, exit activity has notably surged to USD 1,908billion in 2Q26, up from USD 438billion in the last quarter, due to a concentrated pipeline of mega-IPOs, while deal count is estimated to have increased modestly to 899, up from 871 in the last quarter.
  (GTMA P. 73, 74)
• Based on LCD data, direct lending deals have slowed over the quarter, recording USD 33billion across 149 transactions, below the USD 74billion across 217 deals in the previous quarter, as borrowers likely struggled with rising input prices and a compounding effect from weak sentiment over software exposures.
  (GTMA P. 75, 76)

Other financial assets

• Oil prices moved sharply lower as investors focused on the U.S.-Iran ceasefire, which reopened the Strait of Hormuz and began a 60-day window for further talks, particularly around Iran’s nuclear program. As flows through the Strait recover, oil prices fell back near pre-conflict levels by month-end. While renewed hostilities late in the month and U.S. President Trump’s threat to resume the war kept geopolitical risk in focus, the prospect of improved supply flows and easing disruption concerns outweighed those risks.
  (GTMA P. 70, 72)
• Momentum on the USD continued, with the DXY index up 2.3% to 101.2 by month-end, as markets priced in a more hawkish interest rate path ahead. By contrast, most developed market currencies declined, with the EUR down 2.0%, the GBP down 1.5%, and the CHF down 3.1%. Asian currencies similarly pared losses, with the JPY down 2.0%, the KRW down 2.7%, and the TWD down 1.7%. That said, the CNY was relatively most resilient over the month and fell only 0.3%, and the INR also gained 0.4% as a result of the Reserve Bank of India’s policy changes to stabilize its currency.
  (GTMA P. 67, 68, 69)

a17dc3ca-cf5c-11f0-8985-032d8d686ce3