Macroeconomics

The last couple of weeks have been busy on the GDP front with a few countries reporting Q2 growth numbers.

As we approach the end of the reporting season for European financials, including banks and insurers, Q2 2026 has proven to be another strong quarter, with most reported earnings coming in ahead of consensus and several banks upgrading their already ambitious profitability guidance for the year.

The latest Federal Open Market Committee (FOMC) meeting left a strange taste on investors' mouths. In our view, Chair Kevin Warsh failed to clarify the Federal Reserve’s (Fed's) reaction function and the central bank’s views on the current economic picture and relating to monetary policy.

Federal Reserve (Fed) Chair Kevin Warsh hosted his second Federal Open Market Committee (FOMC) meeting this week, with most people, including ourselves, expecting a hawkish hold.

The German government has been quite an active and bold one since it took office some 15 months ago.

Having initially expected central banks to cut interest rates in 2026, investors now face a hawkish pivot after the European Central Bank (ECB) hiked rates at its June meeting.

UK government bond yields have pushed higher this month as markets have digested a building political crisis, with the prime minister, Sir Keir Starmer, now set to face a Labour Party leadership contest following dire local election results on May 7.

European bank results for the first quarter of 2026 have revealed a strong start to the year, allaying some of the concern that the prolonged conflict in the Middle East might impact bank fundamentals to some extent.

Credit markets have been remarkably resilient in the face of significant geopolitical and macroeconomic volatility in recent weeks.

With tensions in the Strait of Hormuz increasing over the weekend and markets getting used to oil prices well in excess of $100 per barrel, this seems an opportune moment to zoom out and look at the state of play in fixed income markets, considering the unsettling reality of a longer-than-expected conflict in the Middle East.

Sharp swings in government and corporate bond markets since the onset of the Middle East conflict pose interesting questions for fixed income investors.

With no end in sight to the US-Israeli war with Iran, and tensions escalating once again over the weekend, investors are bracing for more volatility. Inflation fears have ramped up significantly, reflected clearly in government bond markets where rising yields show rate cuts being priced out and rate hikes increasingly being priced in.