A week dominated by earnings from major technology companies and interest rate decisions from three leading central banks is expected to determine the direction of global equity markets through the remainder of the summer, according to Barclays.
The bank’s strategists said investors are balancing robust corporate earnings against mounting macroeconomic risks, including higher oil prices, rising bond yields and persistent inflation concerns.
Led by Emmanuel Cau, the Barclays team said equity markets had remained resilient despite a rise in interest rates, a rebound in crude oil prices and uncertainty surrounding artificial intelligence spending. Early second-quarter earnings in both the United States and Europe have generally exceeded expectations, underpinned by solid corporate fundamentals.
However, the strategists warned that crude oil prices, which have returned to around US$100 per barrel amid the unresolved US-Iran conflict, are increasing inflation expectations in both the United States and Europe despite recent signs of easing inflation.
They noted that the European Central Bank has left open the possibility of another interest rate increase at its September meeting, while the US Federal Reserve is widely expected to leave rates unchanged next week but maintain a firm stance on tackling inflation.
Attention will also turn to the Bank of Japan, following recent signals that policymakers may accelerate the pace of interest rate increases. Barclays said the shift in tone resembles the market conditions that triggered the unwind of carry trades during the summer of 2024.
The strategists argued that the era of global monetary policy easing has effectively come to an end, requiring financial markets to adjust to an environment of higher real interest rates, which they said has historically been associated with increased volatility.
Barclays also said Google’s latest earnings failed to fully reassure investors over the sustainability of heavy investment in artificial intelligence infrastructure, with several major technology companies still due to report their quarterly results in the coming days.
The bank further cautioned that higher oil prices could revive stagflation risks, particularly for banking shares and economically sensitive sectors that have supported European markets in recent months.
Although real interest rates in the United States have risen by about 50 basis points since the April peak in oil prices, Barclays noted that the latest increase has been driven by an energy supply shock rather than stronger economic growth.
If oil prices remain elevated, the strategists warned they could slow economic growth, tighten financial conditions and reduce support for cyclical sectors, although strong corporate earnings continue to provide some resilience.
With global equity markets trading near record highs despite growing macroeconomic headwinds, Barclays said investors face limited room for error.
The bank added that seasonal market trends ahead of the US midterm election period are typically unfavourable and recommended that investors consider hedging against potential market volatility.
