WeekWatch

• Mid-month, the US and Iran signed a memorandum of understanding (MOU) with the aim of reaching a comprehensive settlement within two months. The oil price eased to pre-war levels and inflationary concerns faded, reducing expectations of further rate hikes
• Led by the S&P 500 and Nasdaq, global markets delivered a volatile performance during the period, as investors weighed up the high AI capex plans against weak earnings visibility and high valuations.
• SpaceX’s initial public offering on 12 June was one for the record books. Offered at $135 per share, the price rose to $165 on the first day of trading. It became the first new listing to reach a market value above $1 trillion on the first day of trading.

A pre-holiday jobs shock

June’s US jobs report, released just before markets closed for the 4th July holiday, raised quite a few eyebrows. 57,000 new jobs were created in the month, well short of the 113,000 estimate. The hospitality and leisure sectors lost jobs, at odds with expectations the FIFA World Cup would provide a boost. 

The market reaction was to push stocks higher, while bond prices fell (yields move in the opposite direction). In the stock market, the rotation continued away from mega-cap AI-related companies. Previous laggards, such as healthcare and consumer-related companies rallied. 

Some investors believe the low jobs data weakens the case for a rate hike by the Federal Reserve (Fed) later this year, with chances of a July rate increase now only 20%. Admittedly, there remains a sharp disconnect between the Fed’s 2% inflation target and the latest US consumer price index (CPI) rate of 4.2% in May. 

With the oil price falling below pre-Iran war levels, markets will be hoping that June’s inflation update on 14 July will reflect that it is the first month since the war began that the price paid for petrol will be meaningfully lower that the month before. 

A lower US unemployment rate, but is that good news? 

Alongside the disappointing jobs growth, the unemployment rate fell from 4.3% to 4.2%. Intuitively, fewer people out of work is good news, but a close examination may suggest a more worrying reason. Some analysts suggest this reflects people are dropping out of the pool of available workers, i.e a lower worker participation, maybe as baby-boomers retire, as well as there being fewer immigrants in the workforce following recent government crackdowns. It is unclear whether this workforce contraction is a one-off correction or something that could be more structural. 

Doves in Sintra and the end of forward guidance

The European Central Bank’s (ECB) annual forum of central bankers, academics and others was held in Sintra, Portugal. Taking place soon after oil fell back to pre-war levels and so easing inflationary/interest rate hike fears, it was also Kevin Warsh’s first overseas trip as Fed chair. The economic impact of AI, migration and productivity were all on the agenda, but inflation dominated the headlines. Greg Venizelos, SJP’s fixed income strategist, commented that the tone was dovish. A key takeaway was major western central banks including the ECB and Bank of England (BoE) following the Fed in abandoning forward guidance on interest rate decisions.  

Traditionally, markets have used forward guidance as a way of minimising the chances of a shock rate move by central banks. The argument against its use is that it can damage central bankers’ credibility if markets don’t behave as expected, while leading to more market volatility. During the post-pandemic inflation surge in 2021/2, the ECB and other key banks held off raising rates, insisting the spike in inflation, which eventually climbed above 10%, was “transitory”. Eventually, they were forced to raise rates. Despite this, removing forward guidance has its critics, as it could mean markets become more volatile in the lead up to rate decisions. 

Less of a struggle for gold? 

Over the past 12 months the gold price has risen 25%, peaking at just under $5,600/oz in early January 2026. Since then, performance has dipped and year-to-date, it remains in negative territory (-3.9%). Along with bitcoin, it is one of the worst performing assets so far this year. 

As a non-yielding asset, rate cut expectations at the beginning of the year supported gold’s appeal relative to other investments. The outbreak of the Iran war, and the subsequent jump in energy prices and inflation saw investor expectations pivot from rate cuts to hikes, weakening gold’s relative attractiveness. A stronger US dollar, making gold more expensive for overseas buyers, also contributed to the pricing pressure. 

The rapid downward correction in energy prices as the US and Iran seek a peace deal is reinforcing hopes that inflationary pressures are now in retreat. Less inflationary pressure could continue to improve gold’s relative appeal. This helped it end the week in positive territory (+3.5%).  

What’s going on at Microsoft?  

Microsoft’s share price rallied last week, a performance at odds with its wider returns so far this year. During June, the shares dropped by 17%, its weakest month since the dot-com bubble of 2000. As SJP’s equity strategist Carlota Estragues Lopez noted, “this was three times worse than the sector shake-out for tech and AI over the same period, and more than ten times worse the broader market over the same period”. 

Analysts view the company as one of the most vulnerable mega-cap tech companies should current high levels of AI expenditure not deliver the expected returns. Earlier this year, the company was seeking to spend $150 billion annually on AI. Whether that will convert into long term revenue growth for Azure, its cloud-based system remains uncertain. Meanwhile, growth for its consumer facing Copilot product has been weak, showing how high AI-expenditure may not secure an earnings uplift, at least for now. 

Microsoft is not alone in showing a stark mismatch between AI capital expenditure and cash generation. Other mega-caps such as Amazon, Alphabet and Meta are facing similar issues.     

FTB ISA savers to lose out on benefits of compounding

Changes to the timing of the government bonus on the new first-time buyer (FTB) ISA could leave savers worse off than under previous schemes, experts have warned.

The government unveiled the details of its new FTB ISA last week. It will replace the lifetime ISA (LISA), which savers can use to save towards a deposit on a first home as well as saving for retirement, from next year.

Under a LISA, the government bonus is added every year and can benefit from any future interest or investment growth. Over time, this compounding effect can help savers build a larger deposit pot. Although investors need to bear in mind that with a stocks and shares LISA, the value of the fund could fall as well as rise and they could get back less than they invest.

In contrast, under the proposed FTB ISA, the government bonus would only be added when the money is withdrawn to buy a property, meaning savers would miss out on this additional compounding growth.

Experts say that while the new FTB bonus structure will remove the issue of the early withdrawal penalty (currently 25% if a LISA saver withdraws the money and doesn’t use it to buy a first property), it could mean it will take longer for FTB ISA savers to build up a home deposit.

Niki Patel, tax and trust specialist at St. James's Place says: ‘The loss of compounding is a potential drawback of the proposed FTB ISA. Over several years, this could leave long-term savers with a noticeably smaller pot, reducing the overall value of the incentive.’

Please note that lifetime ISAs (LISA) are not available through St. James's Place.

Savers warned of poor value in closed pension funds

Pension savers could be at risk of poor value and low growth if they hold funds in closed non-workplace pension products.

The industry regulator, the Financial Conduct Authority has warned pension firms to do more where they are holding savers funds in closed or legacy unit-linked pensions and savings or face regulatory action1.

The FCA said ‘complex charging structures, older product design and weakness in firms' data meant some pension savers are not getting as much value as they could’.

The findings came out of the FCA’s review of unit-linked pensions and savings – a market worth up to £1 trillion. These are pooled investments offered by insurance companies through life insurance-based pensions and savings products.

The regulator found that while many unit-linked products deliver fair value for savers, many with money in legacy pensions were receiving poorer value and are typically hit with ‘multiple layers of charges’.

¹Unit-linked pensions and savings: Multi-firm review of Consumer Duty price and value practices. Financial Conduct Authority. 2 July 2026.