Summer vibes, market highs | Luminor
Summer vibes, market highs
- Fed holds rates steady as tariff pressures and political tensions cloud outlook
- Markets remain stable as oil briefly spikes on Middle East tensions
- German economic sentiment improves in June
The summer months are here and markets seem to be in a good mood. In June, markets delivered modestly positive returns, extending the rebound that began in late April and carried through May. Despite ongoing tensions in the Middle East, market volatility has eased from earlier highs this quarter, and investor sentiment has shown signs of improvement. While investors may have the wind at their backs for now, several important events in the coming weeks could test the market’s direction.
In June the developed markets’ equities (measured by MSCI World index in EUR) have increased 0.88%, while emerging markets’ equities (measured by MSCI Emerging Market index in EUR) have risen 2.53%. During the same period yields on bonds were decreasing, with 10‑year U.S. Treasury bond yields declining to 4.23% from 4.42% a month ago, while German 10‑year Treasury bond yields remained relatively stable, hovering around 2.5%.
Fed holds steady, but pressure builds
As expected, the Federal Open Market Committee concluded its June meeting without adjusting the key interest rate, maintaining the target range at 4.25%–4.50%. The updated dot plot continues to indicate two rate cuts later this year. However, policymakers remain cautious amid ongoing concerns that recently implemented tariffs may contribute to upward pressure on consumer prices. Elevated import costs, in particular, could present inflationary risks in the months ahead. Meanwhile, President Trump has publicly criticized the decision and expressed dissatisfaction with Chair Jerome Powell. According to reports, the administration may consider advancing the timeline for naming Powell’s successor ahead of the official end of his term in 2026, potentially influencing the direction of future monetary policy. For now, markets have reacted with relative calm, showing limited volatility in response.
Middle East tensions and oil volatility
News lately has focused on the conflict in the Middle East and it's impact on oil prices. Following recent US airstrikes on Iranian nuclear facilities, financial markets have responded with relative composure. Oil prices initially spiked above $79 per barrel but quickly retreated, suggesting that investors are not pricing in sustained supply disruptions. While geopolitical risks remain elevated – especially given Israel’s airstrikes and Iran’s retaliation – markets appear to view the threat as contained for now. Still, energy prices continue to play a big role in driving inflation and move lower in oil prices is not only relief for consumers, but also helps to keep inflationary pressures contained.
Brent crude oil price, USD/bbl
Source: Investing.com
Confidence climbs in Germany
Investor confidence in Germany improved sharply in June, according to the ZEW research institute. Its economic sentiment index rose to 47.5, up from 25.2 in May. The boost in optimism followed the government’s approval of a large tax relief package aimed at supporting businesses and encouraging investment. German lawmakers passed a nearly €46 billion package of corporate tax breaks, set to run through 2029. The goal is to help revive economic growth after two years of sluggish performance. The package, called an “investment booster,” still needs approval from the upper house, the Bundesrat, which is expected to vote later in July. If approved, the package could provide a timely boost for business sentiment and investment activity. Investors will be watching closely, as the outcome may shape expectations for Germany’s economic recovery path.
Market view
Markets have picked up momentum heading into summer, with recent gains reflecting a more positive tone. While this renewed strength is encouraging, several potential headwinds remain on the horizon. Ongoing tax and trade negotiations, uncertainty around US policy, and the impact of higher tariffs could contribute to short term volatility. Global tensions and shifting headlines are also keeping investors on alert. At the same time, the world’s major economies have held up well so far this year, which has helped support markets as we move through a still uncertain environment.