Quick Bites | Some Global Themes from H1 2026

Getting to the halfway mark of the calendar year is as good a time as any to take stock. From geopolitical volatility to monetary policy surprises and a continued AI-led rally, the first half of 2026 introduced several structural challenges for global markets. Around the world, here are a few trends we find:

●           Globally, most commentators think real GDP growth will slow to ~2.4% yoy in 2026 amid lingering headwinds from the rise in energy prices from the Iran war. They expect global core inflation to end the year at ~2.9%, reflecting a fading tariff boost and further normalization in shelter and wage inflation but a boost from energy price “pass-through”.

●           In the US, the market expects real GDP growth of ~2.0%, reflecting subdued consumer spending growth but a boost from the AI boom via higher equity wealth as well as strong capex. Core PCE inflation will remain high ~3.2% by December 2026 given the effects of tariffs, energy price pass-through, AI demand, and higher financial services prices, with it falling closer to 2% in 2027. Markets expect the unemployment rate to end 2026 at ~4.4%.

●           We expect the Fed to leave the policy rate unchanged at 3.5-3.75%, though the hawkish June FOMC meeting raises the risk of interest rate hikes following the mid-term elections in November.

●           In the Euro area, real GDP growth should improve in 2H26 given easing financial conditions and likely lower energy prices for full-year real GDP growth of 0.5% yoy. Core inflation will likely peak around 2.6% yoy in 4Q26 amid lingering high energy prices before declining to 2.0% next year.

●           We expect the ECB to deliver one more 25bp hike in September to a peak policy rate of 2.5% before cutting back to 2% in 2027.

●           In China, we expect growth to rebound in 3Q26 as the oil shock reverses and fiscal spending increases for full-year real GDP growth of 4.7% yoy. We expect CPI/PPI inflation to rise to 1.0-2.0% this year largely owing to commodity price pass-through.

Iran and the Strait of Hormuz

The fragile agreement between the US and Iran has reduced the downside risks to the economic outlook, though the situation is still uncertain and we will be closely watching how oil flows through the Strait of Hormuz evolve from here.

Following the reopening of the Strait, physical oil flows from regional producers are gradually recovering through re-routing and the release of previously blockaded barrels, though overall volumes have not yet trended significantly higher. A full normalization of global balances and pricing will likely be challenging due to persistent geopolitical friction, infrastructure damage, and logistical bottlenecks.

Brent Crude over last 6 months

Source: Goldman Sachs

The Fed under new Management

Kevin Warsh’s first FOMC meeting saw significant changes to the Fed’s statement and limited forward guidance. The markets took the meeting as hawkish – pricing in nearly two hikes by year-end – but risk assets were quick to brush off this hawkish shift. For political reasons, we doubt the new Fed Chair would risk a fight with President Trump before the mid-terms by raising rates.

June’s plunge in oil prices will certainly reduce the headline inflation rate, but the core rate is still at 3.4% yoy. Before the war, it was stuck just below 3.0%. In his press conference last week, Warsh acknowledged that inflation has exceeded the FOMC’s target for more than 5 years and committed the Fed to restoring price stability. So, we are still inclined to expect at least one rate hike before year-end, but most likely in Nov/Dec.

Falling energy prices will slow inflation. However, the AI spending boom is driving up electricity bills and consumer electronics prices. Last week, Apple and Microsoft both announced significant price increases because of soaring memory chip prices.

AI stocks take a well-deserved breather.

Investors are experiencing a degree of AI fatigue. They are questioning whether the hyperscalers’ massive spending on AI infrastructure will ever pay off. They see token prices falling, suggesting there might already be excess compute capacity. They see that yet another Chinese company is offering cheaper, powerful, and open-source LLMs. They worry that new technologies will rapidly make current ones obsolete in a process known as “creative destruction.”

Some companies are worried that agentic AI usage is blowing up forecasted budgets. Microsoft is apparently eyeing DeepSeek as a cheap alternative to the expensive OpenAI and Anthropic models currently powering its enterprise agent tool, Copilot. Disruptive technologies have consequences which are difficult to predict.

The Magnificent 7, which includes the biggest hyperscalers, has struggled in June. The MAGS ETF peaked at a record high on May 26 and has fallen around 13% at the time of writing (29 June), and is down 6.6% YTD, while the other 493 stocks in the S&P500 index are up 13%. Trees (even the biggest ones) don’t grow to the sky.

Source: Yardeni Research

Nevertheless, the US equity markets still look reasonably solid, albeit at the pricey end of historical ranges – based on strong corporate earnings growth expectations.

Source: Yardeni Research

Commodities still attractive

Investing in different commodities can help diversify risks inherent to investment portfolios under different circumstances, including:

• commodity supply shocks, like the Hormuz disruption, which might lead to higher inflation and lower economic growth,
• structural demand support for commodities that face challenges to growing supply, and
• a flight to real assets when fiscal sustainability or other financial risks arise. We see many of the drivers supportive of commodity returns staying relevant going forward.

The Iran conflict reinforces the themes (like EVs, grid investment, AI race) supporting power and metals demand, more so than oil and gas. At the same time, on the supply side, power infrastructure can face bottlenecks while metals refining is still highly geographically concentrated. As a result, while oil and gas have traditionally had a bigger impact on inflation, and its supply concentration and associated geopolitical risks remain, sharp price increases might start to also appear more often across power and industrial and precious metals markets going forward.

While precious metals appear to have given up their “safe harbour” status just at present, and the gold price is difficult to predict, we are generally supportive of an exposure within portfolios. Industrial metals such as copper appear well set for rising prices over the next few years due to a sustained demand amidst limited new supply.