Introduction

June was another month in which politics, geopolitics and central bank policy remained key drivers of financial markets.

In the UK, investors focused on the forthcoming Labour leadership transition following Sir Keir Starmer’s announcement that he intends to step down once the party elects a new leader. Markets have remained broadly stable, with investors primarily interested in whether any new administration maintains the government’s existing fiscal framework and commitment to budget discipline.

Globally, sentiment improved as tensions in the Middle East eased following the signing of the Islamabad Memorandum on 17 June. While the agreement does not fully resolve regional conflicts, investors welcomed signs that the risk of prolonged disruption to global energy supplies may be diminishing.

United Kingdom

The dominant domestic development during June was the announcement that Prime Minister Sir Keir Starmer intends to step down following the Labour Party leadership election process. Former Greater Manchester Mayor Andy Burnham has emerged as the leading contender to succeed him, and financial markets are now assessing the potential implications for future fiscal and economic policy.

Importantly, investors have reacted calmly to the prospect of a leadership change. Market participants generally appear to expect continuity in key areas of economic policy, particularly around fiscal discipline and debt management. While speculation regarding future tax policy has inevitably resurfaced, there have been no formal announcements of significant changes.

UK equity markets remained resilient throughout June, helped by improving global risk sentiment and easing energy-market concerns. Gilt yields experienced only modest movements during the month, suggesting that investors are currently viewing the political transition as orderly and manageable.

The Bank of England left the base rate unchanged at 3.75% at its June meeting, with the Monetary Policy Committee voting 7-2 in favour of holding rates. Inflation remained at 2.8%, although policymakers continued to highlight uncertainty surrounding energy costs and the potential for ongoing inflationary pressures. Markets continue to monitor the possibility of further tightening later in the year if inflation proves persistent.

United States

US equity markets ended the first half of 2026 in strong form. The S&P 500, Nasdaq Composite and Dow Jones Industrial Average all reached new highs during June, supported by resilient economic data and continued enthusiasm surrounding artificial intelligence and technology-related investment.

The Federal Reserve left interest rates unchanged at its June meeting. However, policymakers adopted a more cautious tone regarding inflation, citing the potential impact of higher energy prices and wider geopolitical uncertainty. As a result, market expectations have shifted modestly, with investors placing greater weight on the possibility that rates may remain elevated for longer than previously anticipated.

One of the most significant corporate developments of the month was the highly anticipated SpaceX initial public offering. The company completed the largest IPO in history, with strong initial investor demand reflecting continued enthusiasm for businesses linked to artificial intelligence, technology infrastructure and long-term innovation themes. While the valuation attracted debate among analysts, the successful launch is expected to encourage further listings across the technology sector.

Geopolitics also remained a major influence on markets. The signing of the Islamabad Memorandum between the United States and Iran represented an important step towards reducing tensions in the Middle East and supporting the gradual normalisation of global energy and shipping markets. Although implementation remains fragile, the agreement contributed to improved investor sentiment during the month.

Europe

The European Central Bank raised interest rates by 0.25% in June, increasing the deposit facility rate to 2.25%. Policymakers cited ongoing inflationary pressures and uncertainty surrounding the economic impact of higher energy prices when explaining their decision.

Despite the rate increase, inflation data released at the start of July showed eurozone inflation slowing more quickly than anticipated during June. This has led investors to question how much additional tightening may be required in the months ahead.

Economic activity across the eurozone remains subdued but has shown signs of gradual improvement. Business survey data improved modestly during June, with both manufacturers and service providers reporting a less challenging operating environment than earlier in the year. However, growth remains fragile and the region continues to be sensitive to developments in energy markets and global trade.

Looking ahead, investors will continue to monitor inflation trends, economic growth and the sustainability of recent improvements in energy prices.

Far East

Japan remained one of the stronger-performing developed markets during June. The Bank of Japan increased its policy rate to 1.0%, its highest level in several decades, reflecting confidence that inflationary pressures have become more sustained.

The Japanese equity market absorbed the move well, with both the Nikkei 225 and TOPIX indices extending their gains. Strong demand linked to artificial intelligence, semiconductor production and advanced technology manufacturing has continued to support Japanese corporates. Exporters have also benefited from a relatively weak yen and supportive economic conditions.

In China, survey data suggested a modest improvement in business activity during June. Manufacturing activity strengthened and export demand improved, although some of this strength may reflect companies bringing forward orders ahead of potential future trade restrictions.

The broader technology competition between China and the United States remains an important long-term consideration for investors, particularly within semiconductor and artificial intelligence supply chains.

Emerging Markets

Emerging market performance continued to be heavily influenced by developments within the global technology sector.

Taiwan and South Korea remained among the strongest-performing markets as investors continued to favour companies involved in the production of advanced semiconductors and artificial intelligence infrastructure. The increasing importance of these sectors has significantly reshaped the composition of the MSCI Emerging Markets Index over recent years.

While exposure to artificial intelligence has supported returns, it has also increased volatility. Share price movements among major technology companies contributed to periods of market fluctuation during June.

India delivered more mixed performance during the month, with higher energy costs and currency weakness creating some headwinds. Nevertheless, the country remains one of the fastest-growing major economies globally and continues to benefit from favourable demographics, strong domestic demand and ongoing infrastructure investment.

Elsewhere, Indonesia remained under review by MSCI regarding its market classification. While an extension of the review process reduces immediate pressure, uncertainty surrounding the outcome is likely to remain a consideration for investors over the coming months.

Summary

June’s investment environment was defined by two key themes: inflation and geopolitics.

Central banks generally adopted a cautious stance. The Federal Reserve, European Central Bank and Bank of England all emphasised the importance of controlling inflation while carefully monitoring the economic impact of energy prices and global uncertainty.

Meanwhile, easing tensions in the Middle East provided support for investor confidence. The signing of the Islamabad Memorandum helped reduce fears of prolonged disruption to energy supplies and contributed to stronger market sentiment across many regions. While risks remain and implementation will require continued progress, financial markets welcomed signs of de-escalation.

Overall, global equity markets demonstrated resilience during June, supported by ongoing technological innovation, improving risk appetite and evidence that economic growth remains positive in many regions. Inflation, interest-rate expectations and geopolitical developments are likely to remain the principal drivers of markets during the second half of the year.