Global equities rallied last week, with the MSCI All Country World Equity index hitting an all-time high above 954. The VIX volatility index fell to its lowest level since December, signaling strong confidence despite ongoing uncertainties.This broad-based rally extended beyond the U.S. to European and Australian markets.

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Markets were fairly quiet during the last week before rising strongly in the last few days after a fairly ambiguous US CPI print. Many observers have been puzzled by the market's sanguine reaction to the core measure which was only slightly above expectations but did  show a concerning uptick in goods inflation likely due to tariffs. Japan's market surged disproportionately, suggesting the influence of liquidity flows, while in the U.S., mega cap tech names have reported strong earnings amid AI investments, although there are also  signs of deceleration in the broader economy. Substantial capital inflows as people and companies front ended likely tariffs appear to the smoking gun while fiscal stimulus has also been helpful in supporting asset prices. However, as we discuss in this week’s What We Are Working on Video with Andrew Hunt, questions remain about the sustainability of these factors, leaving markets delicately balanced between inflationary and deflationary outcomes, with liquidity acting as a powerful but fickle determinant.

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This episode covers a week where strong Big Tech earnings collided with macroeconomic headwinds. Amazon, Apple, Meta, and Microsoft all beat expectations, yet markets slipped as investors weighed lofty valuations, a sharp slowdown in U.S. job growth, and renewed trade tensions from fresh U.S. tariffs on 68 countries and the EU.

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Last week trade developments dominated sentiment but underlying economic trends remain sluggish. Central banks are in wait-and-see mode amid mixed data. 

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Last week saw U.S. equities push to new highs with the S&P 500 breaking through the 6,300 mark, even as tariff concerns loomed large with the August 1st deadline approaching. There is a bit of a continuing disconnect between equity optimism and underlying economic anxieties, with the dollar strengthening for most of the week before pulling back.

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Markets remained broadly stable despite the announcement of new U.S. tariffs on copper, pharmaceuticals, and Brazilian imports. We look at the impact of a stronger-than-expected U.S. CPI print on bond yields and shifting expectations for interest rate policy.

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Markets ended the week flat but not without turbulence, as surprise tariffs and central bank uncertainty unsettled investors. 

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Global markets just juggled four moving targets in one week: a U-turn on Canada’s digital-tax standoff, a thaw in the U.S.–China trade, dovish signals from three major central banks, and Washington’s 'Big, Beautiful Bill'.

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This past week, markets were heavily influenced by geopolitical events in the Middle East, just not in the way many might have expected

In short:
Markets Rebound After Middle East Tensions Ease: Equities rose globally after Iran’s limited response to U.S. strikes reduced fears of a broader conflict. Oil prices retraced an initial 20% spike, ending the week nearly flat.

Fed Officials Signal Openness to Rate Cuts: Comments from U.S. Federal Reserve officials hinted at potential rate cuts by July if inflation remains contained and labour market softness continues.

Europe Shows Early Signs of Stabilisation: European PMI data improved modestly, especially in Germany, lifting the composite index just above 50 — a tentative sign of growth returning.

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The What & Why of Markets 

The What: Markets Show Composure
Despite escalating conflict in the Middle East, markets remained relatively calm. Oil and gold moved higher, but equities, bond yields, and currencies were largely stable. Investors appear to be monitoring events closely without pricing in worst-case outcomes — for now.

The Why: Markets Often Look Through Geopolitical Shocks
History shows that markets typically recover from geopolitical events. On average, stocks fall around 5% initially but rebound to post gains over the following 12 months.

The What: CBA: A Case Study in Defensive Overpricing
Commonwealth Bank is now trading at over 30x earnings, roughly 50% above its sector. Even optimistic growth scenarios suggest potential downside. This illustrates how safety can come at a steep cost when market sentiment detaches from fundamentals.

The Why: Valuation Discipline Matters Most When Safety Feels Expensive
CBA’s current valuation shows how defensive stocks can become overinflated when investors chase perceived safety. In uncertain markets, starting valuations still matter. History shows that overpaying, even for quality, limits future returns and leaves portfolios more exposed than they appear.

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