Global markets navigated an exceptionally volatile week, with the trajectory of US-Iran hostilities driving price action across asset classes. Oil surged to approximately $93/bbl on Wednesday as tensions escalated, before reversing sharply and declining 6.3% WoW to $84.9/bbl by Friday after President Trump cancelled planned strikes and reports of progress toward a peace agreement emerged. The rapid shift in sentiment triggered a broad cross-asset repricing, with bond yields falling, equities recovering, safe-haven assets retracing gains, and risk appetite strengthening into the week’s close. Beyond the geopolitical developments, several underlying market trends continued to take shape, including a broadening of market leadership from mega-cap technology toward value stocks and small-caps, a growing acceptance of a “higher for longer” interest rate environment.
Key Themes
- Geopolitical Whiplash, Compressed Timelines: The US-Iran de-escalation drove the sharpest single-week oil decline since April. Markets are repricing Hormuz risk in real time; the swing from approximately $93/bbl to approximately $85/bbl reflects a sentiment shift, not a fundamental supply improvement.
- Energy-Driven Inflation Bifurcating from Core: May US headline CPI came in at 4.2% YoY (highest since April 2023), almost entirely attributable to energy. Core CPI moderated to 2.9% with month-on-month price growth slowing for the second consecutive month. This bifurcation supports the Fed’s prolonged pause.
- Tech Rotation Deepens, AI Capex Narrative Intact: The semiconductor index pulled back approximately 12% from parabolic levels before partially recovering. The equal-weight S&P 500 now outperforms cap-weighted YTD (~11% vs. ~9%), with financials, healthcare, and small-caps (Russell 2000 +3.9% WoW) leading. Cloud hyperscalers continue ramping AI capex toward $1 trillion in combined next-12-month estimates.
- ECB Breaks Cycle; BoJ About to Follow: The ECB announced its first rate hike since September 2023 — a 25bps move (deposit rate 2.00% to 2.25%, effective 17 June) accompanied by a 2026 GDP downgrade to 0.8% and CPI upgrade to 3.0%. Stagflation risk is now formally in the ECB’s baseline. The BoJ is widely expected to raise to 1.0% at its June 15-16 meeting (first hike since December 2025). Global policy divergence is narrowing.
- Private Credit: Tactical Recovery, Structural Stress Intact: The S&P BDC Index recovered +1.1% WoW but the YTD deficit of (12.2%) reflects ongoing structural compression as “higher for longer” rates compress NAVs, force PIK elections among weaker borrowers, and widen dispersion between large platforms and single-sector managers.
