Please see the below article from Tatton Investment Management discussing recent market performance, AI-related earnings and capex concerns, central bank policy signals, June asset returns, and ongoing challenges facing European carmakers, received this morning 06/07/2026.
Much appreciated slowing down
Global stocks bounced from the previous week’s sell-off, but they’re still roughly flat over the past month. The previous big winners were, again, under the most pressure. Some are worried this might be more than quarter-end profit-taking, but the simplest explanation is still investors cashing in before their summer break.
Valuations are falling, but only because AI-related earnings are outpacing (minimal) share price gains. That speaks against the AI valuation bubble narrative. Momentum has faded, with a rotation into US mid and small cap stocks – though notably not in Europe. This looks largely seasonal: trading always thins in the summer and investors rebalance at the half year point. Still, slightly weaker growth and AI earnings scepticism have some talking about a potential peak.
The earnings question is heavily tied to AI capex. Meta’s decision to sell its spare cloud computing capacity fed doubts about supposedly endless AI demand. But Meta shares jumped 9%, the decision being read as capex discipline rather than weak demand. We’ve seen false peaks in AI capex before – so we should watch this story but not fret just yet.
The earnings-valuation debate also hinges on interest rates. The ECB now looks unlikely to hike, given weak demand and falling oil prices, but the Kevin Warsh-led Fed looks increasingly hawkish. Warsh’s remarks last week at Sintra, along with his reported recruitment of Mervyn King, suggest a more assertive and less communicative style. For central banks, assertiveness typically means hawkishness. That pushed down US inflation expectations (without denting growth expectations) keeping bond yields under 4.5%.
We note finally that gilt investors shrugged off Ed Miliband becoming the favourite on betting platforms for next UK chancellor, suggesting markets see yields, not politics, as the real constraint.
None of this week’s stories are individually market-moving – but in a quiet summer, small stories can loom large.
June Asset Returns Review
Stocks edged up 0.7% and bonds 0.4% in sterling terms in June – a mild end to a strong quarter. The month’s big geopolitical story, the US-Iran deal to reopen the Strait of Hormuz, barely moved risk assets, which had already priced in an end to the war and (rightly or wrongly) moved on to other stories.
The deal did, however, move oil prices: Brent crude fell 18.7% in sterling terms, dropping below pre-war levels and flipping into ‘contango’ (current prices lower than futures pricing) for the first time since fighting began. Speculative oil positions – which grew dramatically during the war – unwound, dragging down gold and cryptos too, as punters had to find liquidity to close their speculative positions. Strangely therefore, falling oil didn’t lift stocks, as instead, the unwind of energy-linked positions triggered a broader sell-off.
SpaceX’s record-breaking IPO added to the volatility, surging on (expected) index-fund buying before sinking back once management lock-ups expired.
Quarter-end rebalancing from institutional investors compounded the pullback, hitting the previous best performers hardest: US tech fell 1.2% despite a stellar 20.8% quarterly gain, and semiconductor stocks – this quarter’s standout winners – eased off as investors banked profits. Emerging markets, heavily weighted to chipmakers TSMC, Samsung and SK Hynix, ended June nearly flat.
New Fed chair Kevin Warsh made his debut, signalling he’ll prioritise shrinking the balance sheet over rate cuts – a stance that added to liquidity pressure but oddly helped US small caps.
UK markets were barely phased by Keir Starmer’s resignation and (almost certainly) Andy Burnham’s ascension. UK stocks rose 1% even as others struggled. Gilts dipped further than global peers – hinting markets are cautiously optimistic about Burnham, despite his previous dismissive comments about bond markets.
After an excellent first half year driven by AI, some shine came off in June. But investors are already repositioning for gains. The second half of 2026 might be less spectacular, but the growth indicators still point up.
European cars still stalling
BMW issued its third profit warning in as many years, and Volkswagen reportedly plans to axe 100,000 jobs, as European carmakers undergo brutal cost-cutting to keep pace with Chinese competition. Weakness in autos is stark given the AI infrastructure-led strength in other manufacturing sectors. No longer are autos the beating heart of global manufacturing.
Two forces explain the malaise: energy and China. The Post-Ukraine energy price spikes hit production costs, while Chinese competition squeezed revenues. The US-Iran resolution has eased another energy shock, but not enough to shift sentiment.
The China challenge is really two separate challenges: Chinese carmakers are winning global market share at discount prices thanks to overproduction, while Chinese domestic demand itself remains weak. European sales to China are set to shrink dramatically as a share of BMW, Mercedes and Volkswagen’s profits. European demand isn’t picking up the slack either, still 12% below 2019 levels.
The EU has enacted several tariffs on Chinese EVs to support the sector, with little effect. The 2024 tariffs don’t affect plug-in hybrids, where most of the growth is coming from. The European Commission reportedly wants tariffs for plug-ins, but they would probably be better off improving EV infrastructure – given consumers’ usually cite lack of charging point availability as the main barrier.
The deeper issue is that the technology gap with Chinese rivals has all but disappeared, leaving price as the main differentiator. European R&D still leans towards mechanical engineering over digitalisation, and manufacturers prioritise durability over production speed, while Chinese firms move faster with less testing.
Significant restructuring and a technology re-orientation look unavoidable. Even before the EV revolution, the autos industry had overcapacity and arguably needed consolidation. Consolidation won’t happen at the sector level (Germany won’t let its stars get swallowed up) but cost-cutting will force a reset. If the reset forces innovation, European carmakers might yet get out of the rut.
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Marcus Blenkinsop
6th July 2026