Please see the below article from Tatton Investment Management discussing quarter-end market rebalancing, easing oil prices, AI market momentum and the calm gilt market response to Andy Burnham’s economic outlook, received this morning – 29/06/2026.
Mind the money flow at quarter-end
Markets wobbled thanks to quarter-end rebalancing. Institutional investors are selling winners to bring portfolios back in line after a strong quarter. Rebalancing is temporary, although the scale of the sell-off hints that liquidity is becoming less abundant and that the second half of 2026 could (and probably should) be less spectacular.
The Middle East conflict becomes less impactful with each passing week despite the nagging sense of danger and the continued violent spats. The weekend’s disturbances pushed the December 2026 Brent crude oil future price to $73pb, but that’s only up about a dollar from Friday’s level. The relative calm in energy markets is allowing equity markets to open calmly at the start of this week.
UK equities rose despite most regions falling, and UK bond yields fell more than others. Markets look sanguine about Andy Burnham’s ascension, which we cover below.
Oil’s fall to pre-war levels is good news for inflation and growth. However, counterintuitively, the scale of loss in asset value could be weighing on broader asset markets’ sentiment. Speculation in energy contracts has been rampant in recent months, so falling oil prices mean losses for speculators. They must sell other assets to cover positions – compounding the rebalancing pressure on liquidity.
Chip manufacturers have stormed ahead this quarter, but investors are now nervous after months of gains. Even Micron’s jaw-dropping earnings – profits fifteen times higher than a year ago – couldn’t engender a push in US equities to new highs.
The dollar is breaking out of its recent weak range, gaining even against the renminbi. That tightens financing conditions globally. There’s some debate about whether the renminbi’s strength over the last 18 months was deliberate, or a knock-on effect of renminbi-denominated commodity contracts. Regardless, we expect Beijing will want depreciation from here, to aid China’s struggling economy.
AI bubble talk is back. But it doesn’t look like a classic valuation bubble; price-to-earnings valuations have fallen this year as tech profits have exceeded share price gains. It could be an earnings bubble (falling compute costs and chip inflation being passed onto consumers are bad signs) but AI demand is rising too. Growth is strong and will likely get stronger when datacentre construction ramps up, so the party can go on.
Investors are understandably nervous after several strong years. But the fundamentals look good for the medium-term. You wouldn’t want to get off this bus just yet.
Andy’s Economics
Andy Burnham’s rise hasn’t spooked gilt markets – quite the opposite, in fact. Past comments notwithstanding, markets expect the PM-in-waiting to be another post-Truss fiscal realist. Investors expect tweaks to economic policy, but no overhaul.
Gilt markets’ serenity is partly about Burnham’s advisers. Richard Hughes, former OBR head, is an orthodox pick designed to project fiscal credibility. The other two are more interesting. Jim O’Neill – Goldman Sachs veteran and coiner of “BRICs” – urges more borrowing for investment. Andy Haldane, former Bank of England chief economist, has floated a UK “War Bond” to fund defence outside standard balance sheet rules, and called for sweeping tax reform – including a land value tax and an overhaul of stamp duty and council tax.
More important is the Chancellor pick, of course. Once-rival Wes Streeting looks the most likely. He’s no economist, but he’s fiscally conservative enough to calm gilt investors. The fiscal rules will be tweaked – like they always are – but borrowing changes don’t need to rattle gilts if they’re properly formulated and communicated. Haldane wants to add long-term cost-benefit policy assessments to the OBR’s forecasts, potentially creating more room to invest. His War Bond could also be a major growth benefit – in the same way markets cheered Germany’s historic defence package. Burnham will stick to the spirit of the fiscal rules, not the letter.
We’ve repeatedly argued that external factors and structural imbalances are more important for gilts than domestic politics. That’s still true, but the fact UK-US yield spreads fell this week (and crucially, UK yields dropped even as US yields rose) suggesting gilt traders are genuinely pleased.
It helps that the advisers are broadly fiscally conservative — O’Neill and Haldane favour more borrowing, but offset by cuts elsewhere. Haldane thinks the pension triple lock is unsustainable; a change before the next election seems likely. Don’t overread the Burnham-gilt connection, but the stable outlook is helping.
Greenspan-ism lives on
The Fed Chair is Dead; long live the Fed Chair. Legendary central banker Alan Greenspan has passed away at 100, but his influence lives on in new Fed chair Kevin Warsh. Warsh borrows liberally from Greenspan’s playbook: deregulation, a belief that technology will tame inflation, and a desire to keep markets in the dark. It’s a seductive template, but Greenspan’s record is messier than the legend suggests.
The 1990s boom – the highlight of Greenspan’s tenure – was powered by real productivity gains from the internet revolution. The story goes that Greenspan’s insistence on keeping rates low, against colleagues’ wishes, allowed the economy to flourish. Reality is more complicated: US inflation did, in fact, rise substantially into the new millennium, and the Fed did in fact raise rates (because growth pushed up the ‘neutral’ rate).
Greenspan’s commitment to free markets was always selective: he was quick to hand out central bank support when things went wrong, inflating the ‘Greenspan put’ that helped fuel the dotcom bubble. His Fed started buying mortgage-backed securities in the aftermath, eventually creating the 2008 financial crisis.
Warsh’s parallel is striking. He thinks AI will do what the internet did – hold back costs and keep inflation low. He wants deregulation, greater private money creation (through reduced Fed liquidity provision), and less forward guidance.
But the AI era is missing something the dotcom era had: hypercompetition. Internet companies fought intensely on price and the internet itself was free. AI’s supply chain is dominated by a handful of providers, and none of it comes cheap. Those costs bolster AI profits, but they also slow adoption – and ultimately slow the productivity gains Warsh is banking on.
Warsh may well avoid Greenspan’s worst mistakes. He’s clearly learned much from “the maestro”, but learning doesn’t always mean repeating.
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Marcus Blenkinsop
29th June 2026
