Monthly house view | July 2026

Context

At the start of this year, the global economic backdrop was positive for growth – and then the Iran war hit. The conflict abruptly changed the picture, with higher energy prices putting central banks on guard and households on edge. Today, the economy remains in the K-shape that formed last year, particularly in the US. The wealthiest Americans continue to benefit from market gains driven by artificialintelligence (AI), while lower-income groups struggle.

In markets, a boom in capital expenditure to build out the infrastructure required to run AI models is powering the technology sector. We expect investment in other sectors to expand. This should help to resume a closing of the K-shaped economy from the bottom up – a trend that  had begun to take hold until the Iran war began.

Détente

The US-Iran détente – crystallised in the Islamabad Memorandum signed on 17 June – has eased fears over energy supplies. Headline inflation has likely peaked as the energy shock begins to fade. “OPECxit” – the United Arab Emirates’ (UAE) decision to quit the cartel of oil producers – feeds into this narrative as markets expect the UAE could increase productionoutside of the club.

However, the oil shock and disruptions to supply chains have created pipeline price pressures, which are still feeding through the economy, while so-called “tech-flation” is fuelling additional price pressures.

These forces leave central banks facing a difficult trade-off between stubborn inflation and polarised growth – as characterised by the K-shaped economy. There is a risk the US Federal Reserve will hike interest rates this year. Meaningful rate cuts are unlikely unless growth weakens or financial conditions deteriorate.