Markets juggled several competing narratives last week, as geopolitical risk, sticky inflation and a record-breaking IPO all pulled sentiment in different directions.
Major indices ultimately closed the week little changed, but the path there was anything but calm. Oil spiked on Middle East risk, equities wobbled on hotter inflation data, and a wave of “risk-on” enthusiasm tied to SpaceX’s market debut helped sentiment recover by Friday. It was a useful reminder that even the strongest pockets of investor excitement cannot fully escape the pull of inflation, bond yields and central bank policy.
Central Banks Return to Centre Stage
The European Central Bank raised interest rates by 25 basis points to 2.40%, signalling that policymakers are no longer willing to look through the latest energy shock. The move reflects continued inflation pressure from higher oil and gas prices, with the ongoing Middle East conflict raising the risk that elevated energy costs feed further into supply chains, corporate margins and wage expectations.
US inflation data added to the same concern. Headline CPI rose 0.50% in May, taking the annual rate to 4.20%, with energy accounting for the bulk of the monthly increase. Core inflation was more contained but not soft enough to ease pressure on the Federal Reserve. Bond yields moved higher in response, rate-cut expectations were pushed further out, and growth-sensitive sectors, particularly semiconductors, came under renewed pressure.
Middle East Tensions Keep Markets on Edge
Geopolitics remained a key driver of sentiment throughout the week. A fragile pause in hostilities between Iran and Israel early on gave way to fresh tension midweek, after reports that a US helicopter had been downed near the Strait of Hormuz prompted further strikes and retaliatory missile and drone attacks across the region.
By the end of the week, the tone had shifted again. With investors looking for reasons to stay risk-on ahead of SpaceX’s IPO, diplomatic talks appeared to gain momentum and risk appetite recovered. Gold’s reaction throughout was notably mixed, caught between its traditional safe-haven role and the inflationary implications of higher oil prices.
SpaceX’s Record IPO Reshapes Market Attention
At the company level, SpaceX dominated headlines. The IPO priced at $135 per share, raising $75 billion in the largest public offering in history, before surging 19% on its debut and pushing the company’s valuation above $2.1 trillion.
Beyond the headline numbers, the listing drew attention to Starlink’s more than 10 million subscribers across 160 countries, alongside the company’s broader ambitions spanning launch, Starship, xAI and orbital data infrastructure. The knock-on effects were felt across chipmakers and the wider AI ecosystem, with attention also turning to the anticipated IPOs of OpenAI and Anthropic.
What This Means for Diversification
The diverging paths of oil and equities through the week offer a clear illustration of why diversification matters. Exposure to different asset classes, each with distinct return drivers, can help smooth performance during periods when geopolitical risk, inflation data and investor sentiment are pulling markets in different directions at once.
Looking Ahead
Central banks take centre stage again this week, with the Federal Reserve, Bank of England and Bank of Japan all due to announce rate decisions against a difficult backdrop of geopolitical tension and elevated energy prices. Particular attention will fall on the Federal Reserve, where markets are still assessing whether new Chair Kevin Warsh leans hawkish or dovish, and whether the Committee shifts toward a more neutral policy stance. Investors will also be watching closely for any progress toward a formal US-Iran agreement.
At Neba Private Clients, we continue to monitor developments across global markets and assess how changing economic conditions may impact investment opportunities. Maintaining diversification and a disciplined long-term approach remains central to navigating evolving market environments.
This article is based on insights and analysis provided by Matthew Boxall of TEAM.
