Please see the below article from Tatton Investment Management discussing recent market reactions to the US-Iran ceasefire, lower energy prices, central bank policy and Big Tech’s growing AI-related debt demands, received this morning – 22/06/2026.
From Wars to Warsh
The US-Iran deal extending the ceasefire and reopening the Strait of Hormuz buoyed markets last week. Oil prices fell, global stocks rose and long-term bond yields settled. The Israel-Hezbollah exchange reminds us that the deal is fragile but, for markets, the most damaging risks receded.
Attention shifted to Kevin Warsh’s debut as Federal Reserve Chair. Trump picked him expecting lower rates — but it’s now clear that Warsh’s balance sheet reduction plan takes priority. His goal of weaning markets off central bank liquidity and pushing money creation onto banks is reasonable, but it’s already weighing on riskier assets.
The Fed’s surprisingly hawkish suggestion that rates could go up this year pushed up short-term yields and hurt small and mid-caps. Stable real yields and a stronger dollar tell us that markets think Warsh’s ‘hard money’ approach is off to a good start. That puts the dollar on a much firmer footing, which matters for investors; dollar weakness has detracted from strong US equity returns in the last 18 months.
The Bank of England held rates steady, grateful for the Iran deal’s deflationary effect on energy. UK inflation came in at 2.8% — lower than expected — and gilts had a strong week. Andy Burnham’s byelection win nudged yields briefly, but global pressured had already eased enough to overshadow domestic politics. We’ve long argued that gilts’ sensitivity is about structural imbalance rather than politics, so we expect that global factors will remain more important. With lower energy prices, whoever enters Downing Street next might find more fiscal headroom than expected.
China’s renminbi held firm for most of the weak but its stocks still underperformed. Beijing’s strong renminbi policy has tightened liquidity, but they look ready to ease. A softer renminbi could follow, boosting Chinese equities.
With quarter-end approaching, expect some rebalancing as fund managers trim strong performing equities. Many therefore expect markets to take a breather in the second half of 2026.
Shakeout for oil traders
The US-Iran deal to reopen the Strait of Hormuz has sent Brent crude tumbling below $80 per barrel last week — down sharply from nearly $100pb just weeks ago.
It’s not the first time markets have declared the war over, and the strikes between Israel and Hezbollah remind us that political obstacles to the deal remain. But a reopened Strait looks more likely than at any point since the war started.
Futures pricing shows oil markets quickly improving, but with lingering supply problems. There was an oversupply in global oil before the war, and the underlying balance hasn’t changed (especially after Qatar’s OPEC exit). Oil never hit the predicted $150pb during the conflict, in part because of a sharp fall in Chinese imports. Those will likely rebound, offsetting some of the normalisation in supply.
European natural gas prices have fallen too, though not to pre-war levels. The timing couldn’t be better: storage was running low heading into summer, and another few months of disruption could have caused real problems come winter. Like oil, gas was in oversupply before the war, and that long-term balance hasn’t changed. A sustained US-Iran truce would be great news for Europe. It would also benefit emerging markets – whose assets and currencies, unsurprisingly, fared well last week.
Speculative trading in energy markets shot up during the war, increasing volatility. Intercontinental Exchange reported record ‘open interest’ in energy futures a few weeks ago. Hedge funds were interested in energy futures even before the war – noticing the disconnect between energy prices and metals prices. They were handsomely rewarded, and are now closing out positiong. Fewer speculative traders typically means lower energy prices — and, crucially, less volatility.
The shakeout of speculative investors should mean a return to normal in energy markets.
Big Debt for Big Tech
Big tech’s capital appetite keeps growing. JPMorgan now project $4.1 trillion of debt issuance tied to the AI buildout by 2030, with $300 billion already raised in 2026 alone. Investors have focussed on the wave of equity issuance this year – following SpaceX’s IPO – but the so-called hyperscalers still fund the bulk of their AI capex through borrowing. Their stellar credit ratings make that the cheapest option.
The relevance is that debt is usually funded by money creation, whereas equity issuance is typically funded by selling other assets. Debt issuance is therefore less of a drag on liquidity – though it does increase overall leverage and systemic risk.
That risk isn’t showing up in aggregate corporate credit spreads, mainly because the biggest, safest companies are eating up more of the issuance. Aggregate repayment rates therefore stay low, even though rates have increased across each of the credit rating subgroups.
Liquidity is also boosted by the money-multiplier: hyperscalers’ borrowed billions sit in deposits while they’re waiting to be spent, which amplifies banks’ lending capacity. Money supply is therefore strong even though there’s so much demand for it.
That will change once the hyperscalers start building their planned datacentres (low iron prices suggest they haven’t started yet). Real-economy demand pulls money out of the financial system, slowing the savings flow and tightening liquidity. That’s when AI bubble fears could ramp up.
Those fears might be wrong. Increase real economy spending boosts incomes and growth, potentially offsetting the liquidity tightening with stronger corporate earnings. That’s why investors got excited about AI capex earlier this year.
But the wildcard is the new Fed chair Warsh. His plan to reduce central bank liquidity could come to fruition at the exact moment AI capex drains liquidity from the other side. That could be an inflection point for big tech’s borrowing spree.
Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.
Marcus Blenkinsop
22nd June 2026