A good start to the second half, we stay slightly cautious

06 July 2026

AT A GLANCE

Last week was overall positive for stocks and gold, though not that much for bonds and the dollar
Manufacturing PMIs confirm a solid growth while US monthly new jobs disappointed
We decided to maintain a slightly defensive positioning for the summer

Global markets were overall positive last week, especially for stocks with a rebound in the AI ecosystem across regions. The fixed income asset class was held back by a bear steepening of the US yield curve: longer tenors gained 10bps but the shortest ones dropped following a pedestrian monthly jobs report. The dollar weakened as a result, supporting gold while oil prices were stable around $72 for the Brent.

We held our monthly investment committee last week and decided to maintain a slightly defensive positioning. The backdrop is clearly constructive: activity is robust, with great help from the AI buildup, as confirmed by last week’s manufacturing PMIs. Not one week passes without an announcement of another large investment in compute and AI. Oil is now flowing, tankers are crossing Hormuz, which helps on headline inflation and policy wise, we continue to believe that the Fed won’t hike rates this year. Futures markets are getting closer to our baseline, now pricing in only 30 basis points of tightening this year after the disappointing job creations.

The reason for us to lean on the cautious side is that valuations are already reflecting this blue-sky scenario, and that investors sentiment and positioning are both rich. We are thus overweight cash and stocks from the emerging regions, but underweight developed equities and hedge funds. We are neutral on everything else. Our profiles delivered returns between +3.4% and +8.4% in the first half of the year, so we are on track in terms of returns.

The week ahead will provide leading indicators for services and inflation in China. The focus will soon turn to the Q2 earnings season, which will help gauge whether current valuations are justified. Then the July Fed meeting should be more than a statement of intention from the new chair. Finally, we will hold our Mid-Year Update webinar this Tuesday 7.

Have a great week.

Cross-asset Update

Gold is not dead as a safe-haven asset and will soon stage a comeback. Some investors wonder why they should invest in gold, as it is a non-yielding asset. The answer is simple: it is a competitive store of value to the US dollar, so the less one trusts the dollar, the more gold one should own. And one does not trust the dollar when debt loads remain unchecked, as it is currently the case. When debt loads are excessive, sovereigns find ways to share their burdens with their citizens and bondholders, via inflation, via higher taxes, or defaults. Western governments have chosen inflation, by increasing debt in an unconstrained way. The United States can basically print money at will as it prints the global reserve currency, and it is taking advantage. So, the country with the most degrees of freedoms is the most accountable in driving the value of gold up.

New Fed chair Kevin Warsh has declared commitment to fighting inflation. He is building credibility, and investors are trusting him. But who is in power is rather inclined to act as per incentives. What are the incentives? They are in the high public debt levels: they require lower rates; in the massive AI investments: they require lower rates; in the non-cheap stock market that is a source of revenue for the Treasury and of wealth for the super-rich: it requires lower rates. Warsh will find his way to these incentives. Kevin Warsh can leverage lower oil prices, that mean lower inflation and were engineered with an Iran deal. He can leverage the spreading of AI, that means lower inflation via efficiency gains, and whose benefits have been touted by Warsh himself. He can leverage new inflation gauges, like trimmed-mean inflation, that he’s planning to introduce, that will produce lower inflation readings.

All of this will put him on a firm ground to justify the easing, rather than the tightening, of policy. He first gains credibility, to then follow the incentives. The point is, when the system is highly leveraged, negative real rates, that is nominal rates below inflation, bail the system out. They also make the system inherently unstable, so managing it while avoiding asset bubbles is hard.

Hence in times of explosive public debt levels, when money’s purchasing power shrink, our incentive, the incentive of investors, is to own physical gold. Yes, a non-yielding asset that has been an anchor of value across centuries.

Our gold fair value for the year was lowered to $4,500/oz from $5,200/oz. It is not a lower vote of confidence in the yellow metal, rather a risk adjustment of the fair value that takes into account the overall hawkish turn of central banks globally, hence the higher volatility weighing shorter term on the investment case.

Risk aversion came back last week and it wasn’t about geopolitics

Fixed Income Update

A softer-than-expected June nonfarm payrolls report shifted the rates outlook meaningfully, with the below-consensus jobs print prompting traders to reduce expectations for a near-term Fed hike. Interest-rate swaps priced the probability of a hike at the next meeting at around 20%, down from roughly 36% earlier in the week, after Fed Chair Kevin Warsh said inflation risks were easing as oil prices fell. At the ECB’s annual Sintra symposium, policymakers remained divided: Chief Economist Philip Lane avoided committing to another hike, while Governing Council member Ulo Kaasik said at least one further increase would be “reasonable.” Meanwhile, the Bank of England’s Catherine Mann said she was prepared to support an “activist” hike if inflation expectations do not improve in the second half, though she backed holding rates at 3.75% for now.

US Treasuries ended the holiday-shortened week with a bull-steepening bias at the front end. The 2-year yield fell 6 basis points to 4.11% on the back of the soft payrolls data, while the 10-year yield declined more modestly to around 4.46% and the 30-year edged up to 4.99%, leaving the 5s30s spread near 76.5 basis points. We believe the curve is likely to steepen further, with shorter-dated yields anchored by fading hike expectations while longer-dated real yields remain supported by residual inflation concerns.

US investment-grade spreads tightened 1 basis point over the week to 75 basis points, though the Bloomberg US Corporate IG index posted a negative total return of -0.49%, weighed down by the rate move. US high yield fared better on a spread basis, with spreads narrowing 15 basis points to 267 basis points by week's end, and the Bloomberg US Corporate High Yield index returning 0.29% for the week. In EM, the Bloomberg EM USD Aggregate index saw spreads narrow 4 basis points to 163 basis points. Fixed income attracted strong inflows in the week to July 1, with bond funds drawing $29.1 billion and money market funds pulling in $55 billion.

Last week, there were two GCC issuances. National Bank of Ras Al Khaimah raised $600mn through a senior unsecured bond priced at 5.375%, while Mashreq Bank issued a $500mn perp5.5 year bond at 6.625%. YTD GCC issuance has reached $90 bn, with KSA accounting for 45% of the total and the UAE 30%. This week, Ajman Bank announced a mandate for a perpetual 5.5year sukuk. The bank is sharia compliant and benefits from strong support from the Government of Ajman, which directly and indirectly owns 57.7% of its share capital.

Risk aversion came back last week and it wasn’t about geopolitics

Equity Update

Global equities rose broadly last week, with MSCI ACWI up 2.0%, developed markets up 2.1% and emerging markets up 1.0%, even as the semiconductor complex sold off sharply midweek. The difference from the prior week was breadth. Instead of the whole index following memory and chips down, money rotated into cyclicals, financials, defense and a long list of names outside the AI hardware trade, and a soft US jobs print eased pressure on the Fed and helped the broad tape hold. The caution is that the leadership that cracked is still the most concentrated part of the market, and it cut both ways within the same week. In the US the S&P 500 rose 1.8% and the Dow hit a record, up 2.0%, while the Nasdaq 100 lagged at 0.7%, and that split was the whole story. The Philadelphia Semiconductor Index had just closed the best quarter on its record in June, then fell back to back to start July, off roughly 11% over two sessions, after The Information reported Anthropic is in talks with Samsung to build a custom AI chip and Meta detailed plans to sell excess cloud compute, both feeding fears the data center buildout has run ahead of demand. But the tell was underneath: the Magnificent Seven finished higher with Apple up 12% and only Nvidia lower, and the broadening into financials and cyclicals is exactly what we want to see when the index leaders wobble. Single names carried the rest: Tesla fell 7.5% on a classic sell the news after strong deliveries as BYD retook the global EV lead, Comcast jumped on a plan to split, and Michael Burry disclosed a short in Caterpillar.

Elsewhere, Europe is up 2.7% as the rotation is working in its favor, into industrials, banks and defense rather than the market's recent winners, and roughly three quarters of the index finished higher, the kind of participation the US still cannot claim at the index level. Japan kept pace, TOPIX up 2.7%, on the same move out of technology and into the laggards, with Kioxia capturing the whipsaw, down as much as 12% intraday before closing up 9.2% on Friday, and Japanese equities drawing their biggest inflows in seven weeks as money left the US. Emerging markets rose 1.0%, but Korea was the drag: its memory giants were hammered midweek, and even a hard Friday snapback, the Kospi up 5.8%, was not enough to repair the damage, leaving Korea down 3.9% and its benchmark in one of its most volatile stretches in three decades. China was the standout, MSCI China up 3.5%, with the strength in the offshore internet and EV names rather than the onshore tape, where the STAR 50 fell 8% before recovering. Dubai ended up 0.7%, a quiet passenger in the global risk on.

The bottom line is that the AI trade is not broken, but the days of everything rising together are behind us. The market took a scare almost identical to the prior week's and held, breadth is quietly improving, the rotation into cyclicals and banks is broadening, and the economy is holding. The next real test is the second quarter earnings season, which begins in earnest later this month, with consensus looking for roughly 26% earnings growth still led by tech, a high bar for a market sitting at records to clear. The speed of the moves, two sessions erasing the best quarter chips have ever posted, is the reminder of how concentrated this still is, and that concentration works in both directions.

Risk aversion came back last week and it wasn’t about geopolitics

Written by:

Maurice Gravier Chief Investment Officer , [email protected]
Nawaf Alnaqbi Head of Equity Strategy , [email protected]
Satyajit Singh Fixed Income Analyst , [email protected]
Giorgio Borelli Head of Asset Allocation , [email protected]

Disclaimer

This document is prepared by Emirates NBD Bank (P.J.S.C) (“the Bank” or “Emirates NBD”), a public joint stock company incorporated in Dubai, United Arab Emirates (UAE) and licensed to provide various financial services including promotion, financial consultation, securities portfolio management, managing investments of investment funds, etc. Emirates NBD is regulated supervised and controlled by the Central Bank of the UAE (“Central Bank”) and the Securities and Commodities Authority of the UAE (“SCA”), having its head office at Baniyas Road, Deira, PO Box 777, Dubai, United Arab Emirates. This document may be distributed and/or made available by the Bank and its affiliates and subsidiaries, including Emirates NBD Capital KSA CJSC (“ENBD Capital”) (through its website, its branches or through any other modes, whether electronically or otherwise).

Emirates NBD and its affiliates, subsidiaries and group entities, including its shareholders, directors, officers, employees and agents are collectively referred to Emirates NBD Group.

This publication is prepared without regard to the individual financial circumstances and objectives of persons who receive it. Data/information provided in this publication are intended solely for illustrative purposes for the general information or its recipients, irrespective of their customer classification as an Ordinary Investor or Professional Investor under the SCA Regulations.

Any person (hereinafter referred to as “you”, “your”) who has received this document or have access to this document shall acknowledge and agree to the following terms.

Reliance

This publication may include data/information taken from stock exchanges or other third-party sources from around the world, which Emirates NBD reasonably believes to be reliable, fair and not misleading, but which have not been independently verified. The provision of certain data/information in this publication may be subject to the terms and conditions of other agreements to which Emirates NBD is a party. Opinions, estimates and expressions of judgment are those of the writer and are subject to change without notice. Emirates NBD or any member of Emirates NBD Group makes no representation or warranty and accepts no responsibility or liability for the sequence, accuracy, completeness or timeliness of the information or opinions contained in this publication. Nothing contained in this publication shall be construed as an assurance by Emirates NBD that you may rely upon or act on any information or data provided herein, without further independent verification of the same by you.

The contents of this document are prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors, including those relevant to the determination of whether a particular investment activity is advisable. Emirates NBD does not undertake any obligation to issue any further publications or update the contents of this document. Emirates NBD may also, at its sole discretion, update or change the contents herein without notice. Emirates NBD or any member of Emirates NBD Group does not accept any responsibility whatsoever for any loss or damage caused by any act or omission by you as a result of the information contained in this publication (including by negligence).

References to any financial instrument or investment product in this document are not intended to imply that an actual trading market exists for such instrument or product. Certain investment products mentioned in this document may not be eligible for sale in some jurisdictions, and they may not be suitable for all types of investors. The information and opinions contained in this publication is provided for informational purposes only and have not been prepared with any regard to the objectives, financial situation and particular needs of any specific person, wherever situated. If you wish to rely on or use the information contained in this publication, you should carefully consider whether any investment views and investment products mentioned herein are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You should also independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professional advisers or experts.

Confidentiality

This publication may be provided to you upon request (and not for distribution to the general public), on a confidential basis for informational purposes only, and is not intended for trading purposes or to be passed on or disclosed to any other person and/or to any jurisdiction that would render the distribution illegal.

Solicitation

None of the content in this publication constitutes a solicitation, offer, recommendation or opinion by Emirates NBD to buy, sell or trade in any security or to avail of any service in any jurisdiction. This document is not intended to serve as authoritative legal, tax, accounting, or investment advice regarding any security or investment, including the profitability or suitability thereof and further does not provide any fiduciary or financial advice. This document should also not be used in substitution for the exercise of the prospective investor’s judgment.

Third Party

This publication is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. It is the responsibility of any person in possession of this publication to investigate and observe all applicable laws and regulations of the relevant jurisdiction. This publication may not be conveyed to or used by a third party without the express consent of Emirates NBD or its affiliates, subsidiaries or group entities distributing this document. You should not use the data in this publication in any way to improve the quality of any data sold or contributed by you to any third party.

Liability

Notwithstanding anything to the contrary set forth herein, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from this publication including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. Under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of this publication, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business.

This publication does not provide individually tailored investment advice and is prepared without regard to the individual financial circumstances and objectives of person who receive it. The appropriateness of an investment activity or strategy will depend on the person’s individual circumstances and objectives and these activities may not be suitable for all persons. In addition, before entering into any transaction, prospective investors should: (i) ensure that they fully understand the potential risks and rewards of that transaction; (ii) determine independently whether that transaction is appropriate given an investor’s investment objectives, experience, financial and operational resources, and other relevant circumstances; (iii) understand that any rates of tax and zakat or any relief in relation thereto, as may be referred to in this publication may be subject to change over time; (iv) consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment; (v) understand the nature of the investment and the related contract (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk; and (vi) understand any regulatory requirements and restrictions applicable to the prospective investor.

Where this publication provides any information about Shariah compliant products, the Bank will not have engaged a Shariah board (or similar body) to determine independently whether or not such products are compliant with Shariah principles. The Bank accepts no liability with respect to the fairness, correctness, accuracy, reasonableness or completeness of any such determination or guidance by any Shariah board that has certified or otherwise approved such products as Shariah compliant. Nothing contained in this publication shall be construed as a recommendation by the Bank to invest in such product. In deciding whether to invest in Shariah compliant products, you should satisfy yourself that investing in such products will not contravene Shariah principles. You should consult your own Shariah advisors as to whether investing in such products is compliant or not with Shariah principles.

Forward Looking

Past performance is not necessarily a guide to future performance and should not be seen as an indication of future performance of any investment activity. The information contained in this publication does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Risk

Data included in this publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records. The use of this publication is at the sole risk of the investor and this publication, and anything contained herein, is provided "as is" and "as available." Emirates NBD makes no warranty of any kind, express or implied, as to this publication, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of investment products mentioned in this document may neither be capital protected nor guaranteed and the value of the investment product and the income derived therefrom can fall as well as rise and an investor may lose the principal amount invested. Investment products are subject to several risks factors, including without limitation, market risk, high volatility, credit and default risk, illiquidity, currency risk and interest rate risk. It should be noted that the value, price or income of securities denominated in a foreign currency may be adversely affected by changes in the currency rates. It may be difficult for the investor to sell or realise the security and to obtain reliable information about its value or the extent of the risks to which it is exposed. Furthermore, the investor will not have the right to cancel a subscription for securities once such subscription has been made. Prospective investors are hereby informed that the applicable regulations in certain jurisdictions may place certain restrictions on secondary market activities with respect to securities.

Before making an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment. In receiving this publication, the investor acknowledges it is fully aware that there are risks associated with investment activities. Moreover, the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described in this publication and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with the investor.

Intellectual property

This publication has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and such others. All present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall, as between the investor and Emirates NBD, at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties.

Except as specifically permitted in writing, you should not copy or make any use of the content of this publication or any portion thereof or publish, circulate, reproduce, distribute or offer this publication for sale in whole or in part to any other person over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet or construct a database of any kind. Except as specifically permitted in writing, you shall not use the intellectual property rights connected with this publication, or the names of any individual participant in, or contributor to, the content of this publication, or any variations or derivatives thereof, for any purpose. This publication is intended solely for non-commercial use and benefit, and not for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. By accepting this publication, you agree not to use, transfer, distribute, copy, reproduce, publish, display, modify, create, or dispose of any information contained in this publication in any manner that could compete with the business interests of Emirates NBD. Furthermore, you should not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you, except as otherwise provided with Emirates NBD’s prior written consent. You shall have no ownership rights in and to any of such items.

IMPORTANT INFORMATION ABOUT UNITED KINGDOM

This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the London branch of Emirates NBD Bank (P.J.S.C) which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the UK. Some investments and services are not available to clients of the London Branch. Any services provided by Emirates NBD Bank (P.J.S.C) outside the UK will not be regulated by the FCA and you will not receive all the protections afforded to retail customers under the FCA regime, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme. Changes in foreign exchange rates may affect any of the returns or income set out within this publication.

IMPORTANT INFORMATION ABOUT SINGAPORE

This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the Singapore branch of Emirates NBD Bank (P.J.S.C) which is licensed by the Monetary Authority of Singapore (MAS) and subject to applicable laws (including the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA). Any services provided by Emirates NBD Bank (P.J.S.C) outside Singapore will not be regulated by the MAS or subject to the provisions of the FAA and/or SFA, and you will not receive all the protections afforded to retail customers under the FAA and/or SFA. Changes in foreign exchange rates may affect any of the returns or income set out within this publication. Please contact your Relationship Manager for further details or for clarification of the contents, where appropriate. For contact information, please visit www.emiratesnbd.com.

IMPORTANT INFORMATION ABOUT EMIRATES NBD CAPITAL KSA CJSC

Emirates NBD Capital KSA CJSC (“ENBD Capital”), whose registered office is at P.O. Box 341777, Riyadh 11333, Kingdom of Saudi Arabia, is a Saudi closed joint stock company licensed by the Saudi Arabian Capital Market Authority (“CMA”) under License number 37-07086 dated 29/08/2007G (corresponding to 16/08/1428H) to deliver a full range of quality investment products and related support services to individuals and institutions in the Kingdom of Saudi Arabia. ENBD Capital is subject to Capital Market Law, and Implementing Regulations in the Kingdom of Saudi Arabia

ENBD Capital’s contact details are T +966 (11) 299 3900 and F +966 (11) 299 3955.

This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Funds Regulations issued by the Capital Market Authority.

The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective subscribers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities offered. If you do not understand the contents of this document, you should consult an authorised financial adviser.