Equities markets rallied early this week as the US and Iran announced plans to sign a Memorandum of Understanding (MoU) that could bring an end to nearly four months of conflict. Markets cheered the prospect of a resolution to a war that has rattled global energy markets and strained supply chains since late February.
The S&P 500, Nasdaq and Dow Jones Industrial Average all climbed on Monday as investors’ appetite for risk returned after a rocky start to the month. Brent crude tumbled to near pre-war levels, trading below $80 a barrel. Oil prices shed close to 8% this week, and nearly 16% since last Wednesday, based on hopes for the reopening of the Strait of Hormuz. While US officials predicted a return to pre-war traffic levels within 30 days, shipping analysts have warned that demining and safety clearances could delay safe passage through the route.
A hawkish briefing from new Fed Chairman Kevin Warsh, however, dampened equities’ performance on Wednesday. At his first press conference, Warsh said that “recent past need not be prologue” and promised to “deliver” on a return to the Fed’s 2% inflation target. The Fed kept interest rates steady, but governors were split on whether to hold rates or increase them. Traders are pricing in at least one interest rate rise this year.
By Thursday, markets chose to look past the Fed’s hawkish stance and positive sentiment about Artificial Intelligence (AI) and semiconductor stocks supported global markets. The iShares Semiconductor exchange-traded fund jumped more than 6% yesterday, reflecting enthusiasm for AI infrastructure spending. News that Intel would partner with Apple on chip design in the US helped to drive chipmaker and computer component stocks higher.
As a result, the S&P 500 was up 0.9% for the week, the Nasdaq had gained 1.9%, and the Dow Jones Industrial Average was up 0.7%. The MSCI World Index gained 0.4% to Thursday, while gold was on track for a third consecutive weekly loss as the hawkish Fed outlook outweighed safe-haven demand.
Over the next few weeks, the critical variable will be how well the peace deal holds. The MoU starts the clock on 60 days of negotiations, during which some of the more contentious issues, including Iran’s nuclear programme, remain under active discussion. Given the complexity of the negotiations, the window for talks is likely to be extended, prolonging uncertainty.
Furthermore, US President Donald Trump’s volatility and hardline demands from Iran could still cause the tentative peace agreement to fall apart. Trump warned as recently as Wednesday that the US could “go right back to dropping bombs” if Iran misbehaves. Israel may continue to conduct strikes in Lebanon, which could inflame regional tensions and test the accord’s durability.
Provided the peace holds, markets will increasingly look to company performance and macroeconomic fundamentals for guidance. There is a possibility that equity markets could face headwinds from profit-taking or a rotation into cash if inflation fails to cool and the Fed tightens policy.
However, for now, the indicators are broadly positive. The US economy continues to demonstrate resilience with strong jobs data and better-than-expected retail sales. The AI trade is showing no signs of fatigue, with continued investment in infrastructure and strong demand supporting expectations for further earnings growth.
The second quarter earnings season, which begins in the weeks ahead, will be a key test. Investors will scrutinise Big Tech earnings to determine whether AI spending is holding up. They will also be watching for signs of how quickly oil production ramps back up, how fast supply chains are restored, and whether the depletion of global oil reserves during the conflict has lasting inflationary effects.
“With the deal signed, that geopolitical cloud is lifting, but markets have learned more than once that a resolution can unravel quickly. The hard work starts now, and investors will likely be cautious until we’ve got an air-tight deal and traffic genuinely flowing in full through the Strait again.”
– Josh Gilbert, lead analyst for Asia Pacific and the Middle East at eToro
“The repricing this week has been drastic, and part of that came about because of the resumption of Iranian oil almost instantaneously. What comes next is the execution risk.”
– Tony Sycamore, a market analyst at IG Australia
Global News
- The US and Iran signed an interim agreement on Wednesday, ending nearly four months of conflict, reopening the Strait of Hormuz and launching a 60-day process to negotiate a permanent peace and nuclear deal. Talks will focus on Iran’s nuclear programme, its stockpile of highly enriched uranium, sanctions relief and regional security arrangements, with the negotiation period able to be extended if required. On Thursday, Vice President JD Vance postponed a planned trip to Switzerland as negotiators worked through logistical and technical issues, underscoring the complexity of the process. While markets welcomed the diplomatic breakthrough, investors remain focused on whether the ceasefire can be converted into a lasting settlement.
- Signs that Gulf energy exports are returning to normal multiplied on Thursday after the US-Iran agreement reopened the Strait of Hormuz. Saudi oil supertankers that had been idling in the Indian Ocean for weeks began moving back toward the Gulf, while a Qatari LNG tanker stranded since February neared the strategic waterway. Qatar aims to restore most of its export capacity within two months, and Kuwait has begun increasing production, supporting expectations that global energy supplies will normalise and easing pressure on oil and gas prices.
- Relations between Israeli PM Benjamin Netanyahu and Trump have come under strain after the US signed an interim agreement with Iran that many Israeli officials oppose. Tensions escalated this week when Vance defended the deal and warned members of Israel’s cabinet against publicly attacking it. The dispute underscores Washington’s commitment to pursuing a diplomatic settlement and the increasing influence of US political and economic priorities on Middle East policy.
- The Fed left interest rates unchanged at 3.5% to 3.75% on Wednesday, as expected, but signalled a more hawkish outlook as nine of 19 policymakers projected at least one further rate increase this year. In his first meeting as Chairman, Warsh reaffirmed the central bank’s commitment to restoring price stability while offering little guidance on future rate moves. Two-year reserve yields remained near 4.19% on Thursday after reaching their highest level in more than a year as investors increased bets on further policy tightening.
- US retail sales rose 0.9% in May, marking a fourth consecutive monthly increase despite gasoline prices reaching their highest level in almost four years due to the conflict in Iran, according to US Census Bureau data released on Wednesday. With 11 of 13 retail categories recording gains, the figures suggest consumer spending remained resilient despite elevated inflation and higher energy costs.
- Trump said on Wednesday that the US and India are “very close” to finalising a trade agreement following talks with Indian PM Narendra Modi, signalling an improvement in relations after recent tensions over tariffs and regional security issues. While both leaders struck a positive tone and Trump indicated he plans to visit India, analysts cautioned that significant differences remain, suggesting negotiations may still face obstacles before a final deal is reached.
- UK inflation rose less than expected to 2.8% in May, according to data released on Wednesday, with falling oil and gas prices following the emerging US-Iran agreement further improving the inflation outlook. The Bank of England left interest rates unchanged at 3.75% on Thursday and lowered its forecast for peak inflation this year to 3.25% from 3.6%. Easing energy costs, weaker growth and a softer labour market have reduced pressure for further rate increases and strengthened the case for rates to remain on hold.
- The Bank of Japan raised its benchmark rate to 1% this week, the highest level since 1995, amid growing concerns that inflation could exceed its 2% target. A Bloomberg survey released on Wednesday found that 90% of economists expect further rate increases by December, with forecasts for the peak rate rising to 1.75% from 1.5% earlier this month.
- China’s economy showed divergence in May, with weak consumer spending and investment contrasting with strong growth in AI-related manufacturing and exports. Retail sales fell 0.6%, and fixed-asset investment declined 4.1%, while industrial production rose 4.5% and high-tech manufacturing expanded 15%, according to data released on Tuesday. Demand for semiconductors, computers and other AI-related products continues to support growth despite ongoing weakness in the property market and domestic consumption.
- Surging trade between China and Africa, coupled with tariff cuts for most countries on the continent, is set to boost yuan use, advancing Beijing’s efforts to build alternatives to Western finance. China-Africa trade rose nearly 18% last year, customs data showed on Thursday, while tariff cuts announced in May are expected to increase yuan-denominated settlements. IMF research shows yuan use rises with trade exposure to China, while new payment platforms and debt issuance are reinforcing the currency’s growing role across Africa.
- SpaceX’s record-breaking IPO continued to reshape global equity markets, with the stock surging nearly 50% in its first three trading days and briefly overtaking Amazon to become the world’s fifth-largest company. The rally added around $1 trillion in market value and helped cement founder Elon Musk’s position as the world’s wealthiest person – now worth more than $1 trillion. Shares fell about 5% on Wednesday, their first decline since listing, although the company still commands a market capitalisation of about $2.5 trillion and remains more than 40% above its $135 IPO price.
- The cost of the AI race is reducing share buybacks, a key driver of Big Tech’s strong share-price performance. Of the four biggest AI spenders, only Microsoft repurchased shares in the first quarter, with its $3.4 billion buyback the lowest among the group in nearly a decade. Alphabet and Meta are turning to equity markets to fund AI infrastructure, with Alphabet planning an $85 billion share sale, its first in 20 years. The four companies are expected to spend up to $725 billion on AI this year alone, highlighting how rapidly the sector is becoming more capital-intensive.
- Nvidia raised $25 billion through its first bond sale since 2021 after attracting approximately $85 billion of investor orders, underscoring strong demand for exposure to the AI boom. The chipmaker increased the offering from an initial $20 billion target, joining a growing wave of technology companies raising capital to fund AI infrastructure. Despite generating substantial cash flow, Nvidia continues to invest aggressively across the AI ecosystem, including stakes in Intel, Anthropic and OpenAI.
- Intel shares surged as much as 12% on Thursday after Trump said Apple had agreed to work with the company to design and manufacture chips in the US, although neither company confirmed details of the arrangement. Landing Apple as a customer would be a major win for Intel’s turnaround strategy and could help attract additional clients to its foundry business. The potential partnership also supports broader US efforts to expand domestic semiconductor production.
- Apple is preparing a major product refresh cycle, including camera-equipped AirPods, a foldable iPhone, and a redesigned 20th-anniversary iPhone in 2027, as it seeks to reignite growth and strengthen its position in next-generation consumer technology. At the same time, CEO Tim Cook warned on Wednesday that memory chip shortages are driving up costs and could lead to higher prices, highlighting the growing strain AI demand is placing on the semiconductor supply chain.
- Microsoft has built a significant AI business in China despite growing US-China technology tensions, with Chinese firms including ByteDance, Tencent and Ant Group spending heavily on AI models through its Azure cloud platform. ByteDance alone is on track to spend more than $1 billion a year on Microsoft’s AI and cloud services, largely using OpenAI models. The business highlights Microsoft’s unique position in serving AI demand on both sides of the US-China divide.
- Anthropic’s IPO plans face fresh uncertainty after the Trump administration ordered the company last Friday to restrict foreign nationals’ access to its most advanced AI models, citing national security concerns. The company complied with the directive while seeking to address concerns over the models’ cybersecurity capabilities. The move comes just weeks after the $900 billion company confidentially filed for an initial public offering, highlighting growing government scrutiny of advanced AI systems and their potential security risks
- As at Thursday’s close the S&P 500 was 0.9% up for the week.
Local News
- South African mining shares led gains this week after the Middle East MoU boosted investor sentiment on the back of lower oil prices. The JSE’s precious metals and mining index recorded its strongest gain since March 2020, while the rand strengthened to R16.18/$ at one stage, before retreating to R16.47/$ on the Fed update.
- President Cyril Ramaphosa is expected to reshuffle Cabinet, which sources indicated on Thursday could take place as early as this week. This follows a DA request on Wednesday for Ramaphosa to demote former leader and Agriculture Minister John Steenhuisen to Deputy Minister of Trade, Industry and Competition, resulting in additional moves in the environment and electricity portfolios. DA leader Geordin Hill-Lewis said the party remained “100%” committed to the Government of National Unity despite “some malfunction”.
- The Parliamentary panel investigating whether Ramaphosa should be impeached over the Phala Phala farm robbery said on Thursday that it will oppose his attempt to stop the inquiry. Ramaphosa wants the investigation paused while a separate court challenge is considered, but the committee said it has a constitutional duty to continue its work. The court application is scheduled to be heard next month.
- Finance Minister Enoch Godongwana said on Thursday that National Treasury will review South Africa’s 2026 GDP growth forecast of 1.6% ahead of the October Medium-Term Budget Policy Statement as uncertainty linked to the recent Middle East conflict and higher oil prices clouds the outlook. The review follows stronger-than-expected first-quarter GDP growth, although economists continue to warn about higher energy costs and inadequate logistics capacity. Godongwana said reforms are gaining traction, citing six consecutive quarters of economic expansion and improved sovereign credit ratings.
- The New Development Bank, established by the BRICS nations, has approved a $1 billion loan to South Africa to upgrade water, sanitation, and waste management infrastructure across the country’s eight largest metropolitan municipalities. The funding comes as government seeks to address widespread municipal dysfunction and recurring service delivery failures, including recent water outages in Johannesburg and Pretoria, with the aim of improving infrastructure and service delivery in key economic centres.
- Flooding in the Western Cape last month caused more than R9 billion in damage, the highest storm-related loss ever recorded in the province, officials said on Thursday. The severe weather affected more than 231,000 people, claimed at least 12 lives and caused widespread infrastructure damage, forcing the government to reconsider much of its R10 billion infrastructure budget.
- South Africa’s lower-than-expected inflation reading in May has reduced the likelihood of an interest rate hike when the South African Reserve Bank meets in July. Data released by Statistics South Africa on Wednesday showed inflation rose to 4.5% from 4.0% in April but remained below forecasts, while falling oil prices have eased concerns about future fuel-driven inflation. Economists said the combination of softer inflation and lower energy costs increases the chances that the central bank will leave rates unchanged after raising the benchmark rate to 7% in May.
- Anglo American said on Tuesday that the De Beers sale could be finalised within weeks, bringing its two-year divestment process to a close. De Beers CEO Al Cook said buyer interest remains strong, including from consortiums involving the governments of Botswana, Namibia and Angola. While diamond demand has been weak in recent years, Cook expects declining mine supply and a lack of major new discoveries to support the industry’s long-term outlook.
- BHP shares fell more than 3% on Thursday after the miner announced a $2.3 billion impairment charge on its Jansen potash project in Canada, highlighting the challenges of its diversification strategy beyond iron ore and copper. The second phase of the project is now expected to cost $6.9 billion, up from $4.9 billion previously, with production delayed until 2031. Despite the setback, BHP remains committed to the development as a key source of future growth.
- South Africans are increasingly turning to digital content creators and AI platforms for news, according to the 2026 Digital News Report released this week by the Reuters Institute and Oxford University. The study found consumers are shifting away from traditional media toward personality-driven platforms, while 16% of South Africans under 35 now use AI for news. Although AI remains a secondary source for most users, its growing influence comes as South Africa’s media industry faces shrinking newsrooms, retrenchments and declining advertising revenues, raising concerns about misinformation and AI-generated content.
- As at the time of writing, the rand was 1.2% weaker against the dollar, and the ALSI was 1.16% up for the week.
Sources: Dynasty, Bloomberg, Reuters, Business Day, Business Report, Wall Street Journal, Moneyweb.CNBC, etc.
