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Summer vibes, market highs

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.

Mantas Skardžius
Senior Investment Portfolio Manager

DISCLAIMER

Warnings:

  • This Marketing Communication is not considered investment research and has not been prepared in accordance with standards applicable to independent investment research.
  • This Marketing Communication does not limit or prohibit the bank or any of its employees from dealing prior to its dissemination.

Origin of the Marketing Communication

This Marketing Communication originates from Portfolio Management unit (hereinafter referred to as PMU) – a division of Luminor Bank AS (reg. No 11315936, with registered address at Liivalaia 45, 10145, Tallinn, Republic of Estonia, hereinafter - Luminor). PMU is involved in the provision of discretionary portfolio management services to Luminor clients.

Supervisory authority

As a credit institution Luminor is subject to supervision by the Estonian financial supervision and resolution authority (Finantsinspektsioon). Additionally, Luminor is subject to supervision by the European Central Bank (ECB), which undertakes such supervision within the Single Supervisory Mechanism (SSM), which consists of the ECB and the national responsible authorities (Council Regulation (EU) No 1024/2013 - SSM Regulation). Unless set out herein explicitly otherwise, references to legal norms refer to norms enacted by the Republic of Estonia.
Content and source of the publication

This Marketing Communication has been prepared by PMU for information purposes. Luminor will not consider recipients of this Communication as its clients and accepts no liability for use by them of the contents, which may not be suitable for their personal use.

Opinions of PMU may deviate from recommendations or opinions presented by the Luminor Markets unit. The reason may typically be the result of differing investment horizons, using specific methodologies, taking into consideration personal circumstances, applying a specific risk assessment, portfolio considerations or other factors. Opinions, price targets and calculations are based on one or more methods of valuation, for instance cash flow analysis, use of multiples, behavioural technical analyses of underlying market movements in combination with considerations of the market situation, interest rate forecasts, currency forecasts and investment horizon.

Luminor uses public sources that it believes to be reliable. However, Luminor has not performed independent verification. Luminor makes no guarantee, representation or warranty as to their accuracy or completeness. All investments entail a risk and may result in both profits and losses.

This Marketing Communication constitutes neither a solicitation of an offer nor a prospectus in the sense of applicable laws. An investment decision in respect of a financial instrument, a financial product or an investment (all hereinafter “product”) must be made on the basis of an approved, published prospectus or the complete documentation for such a product in question and not on the basis of this document. Neither this document nor any of its components shall form the basis for any kind of contract or commitment whatsoever. This document is not a substitute for the necessary advice on the purchase or sale of a financial instrument or a financial product.

No Advice

This Marketing Communication has been prepared by Luminor PMU as general information and shall not be construed as the sole basis for an investment decision. It is not intended as a personal recommendation of particular financial instruments or strategies. Luminor accepts no liability for the use of the Marketing Communication content by its recipients.

If this Marketing Communication contains recommendations, those recommendations shall not be considered as an objective or independent explanation of the matters discussed herein. This document does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the persons who receive it. The securities or other financial instruments discussed herein may not be suitable for all investors. The investor bears all risk of loss in connection with an investment. Luminor recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors if they believe it necessary.

The information contained in this document also does not constitute advice on the tax consequences of making any particular investment decision. The estimates of costs and charges related to specific investment products are not provided therein. Each investor shall make his/her own appraisal of the tax and other financial advantages and disadvantages of his/her investment.
 
Risk information

The risk of investing in certain financial instruments, including those mentioned in this document, is generally high, as their market value is exposed to many different factors. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. When investing in individual financial instruments the investor may lose all or part of their investments.

Important disclosures of risks regarding investment products and investment services are available here.

Conflicts of interest

To avoid occurrence of potential conflicts of interest as well as to manage personal account dealing and / or insider trading, the employees of Luminor are subject to the internal rules on sound ethical conduct, management of inside information,  and handling of unpublished research material and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. Luminor’s Remuneration Policy establishes no link between revenues from capital markets activity and remuneration of individual employees.

The availability of this Marketing Communication is not associated with the amount of executed transactions or volume thereof.

This material has been prepared following the Luminor Conflict of Interest Policy, which may be viewed here. 
 
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