Oil prices dropped far more quickly than many analysts expected following the announcement of the Memorandum of Understanding between the US and Iran.
By Daniel Morris, Chief Market Strategist
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Despite delays in restoring traffic through the Strait of Hormuz and damage to infrastructure in the Middle East, oil prices have moved back towards pre-war levels, if not quite the lows reached in January. Importantly for Europe, natural gas prices are still elevated (Exhibit 1).
Equity markets have welcomed the geopolitical developments, with non-technology indices such as Russell Value or MSCI Europe gaining 2% to 3% since early June.
This performance stands in contrast to what has happened to tech stocks in the US and emerging markets, where indices have declined by 2% to 4%. The drop is a function of investor worries about excessive exuberance, particularly for Korean stocks, as leveraged ETF bets on further gains suggested markets were getting frothy.
The Nasdaq index has also had to adjust to modestly higher policy rate expectations following the hawkish press conference from the Federal Reserve in mid-June.
Economic data
Economic data continues to point to a further acceleration of activity in the US, alongside contraction or sluggish growth in Europe. The US services sector Purchasing Managers’ Index moved further into expansionary territory (a reading above 50), while those for the major economies of Europe were well below.
The US manufacturing PMI hit its highest level in four years (despite, or because of, tariffs), while the figures for continental Europe were more modest (see Exhibit 2). To the degree that higher energy prices would have a bigger impact on manufacturing than on services, Europe’s poor services figures are worrying.
Not all the data for the US is encouraging, however. The final revision to US first quarter GDP raised the figure from 1.6% to 2.1%. Artificial intelligence-driven business investment remains strong, and the offsetting drag to growth from net exports is lower (much of the AI capital expenditure is spent on importing semiconductor chips, which worsens the trade balance).
The concerning figure was consumer demand, which was revised down from an already low 1% to 0.4%. The long-run, non-recessionary average for PCE (personal consumption expenditures) is 2%. The data suggests that the US consumer may be struggling.
Anticipating what the PCE figure for the second quarter might turn out to be, US retail sales have been running at an even lower rate, though this is true for most of Europe, too (see Exhibit 3).
With business activity evidently still robust, the consumer remains the key vulnerability to US equity markets.
Data sources: FactSet, BNP Paribas Asset Management as of 25 June 2026 (unless otherwise stated). Past performance should not be seen as a guide to future returns.
