Finsphere
Issue 29 | Jul 2026 
Your Monthly Guide on Global and Local markets from our Business Head’s Desk. 
Markets at a Crossroads
As Middle East tensions ease but uncertainty lingers, global markets enter a critical phase shaped by oil prices, bond yields and geopolitical risks.
Dear Clients and Stakeholders,
June proved to be a decisive month for global markets with the US-Iran conflict moving from a story about whether a peace deal would happen and being one about whether a deal would hold. On June 17, the US and Iran agreed on a 14-point framework and establishing a 60-day window to resolve outstanding issues including the Strait of Hormuz. The US began lifted its naval blockade on Iranian ports, and Iran agreed to allow toll-free commercial transit through the Strait for the duration of the 60-day period, though it has signaled intent to impose service fees thereafter a point Oman and the US have both resisted. The negotiations however depend on navigating stumbling blocks, mainly, Israel’s stated intent to remain “indefinitely” in parts of Lebanon, Syria, and Gaza.
The oil markets reacted sharply to progress in peace talks with Brent crude falling from nearly $113 per barrel at the peak of the conflict to about $70 per barrel at the start of July. Despite considerable progress, the ceasefire has been tested repeatedly rather than settling cleanly as both sides traded fresh attacks and accused each other of violations, providing a stark reminder that a return to normalcy is provisional rather than a settled. For inflation and treasury yields, this means directional relief but not resolution as volatility around implementation risk keeps a floor on yields.
Looking ahead, the upcoming couple of months (through roughly mid-August) are the critical window. The recent comments by Iran’s Foreign Minister Abbas Araghchi on US’s regional security efforts doesn’t suggest a side eager to compromise quickly. A durable resolution on the uranium stockpile and the Strait’s longer-term governance would meaningfully de-risk the global growth outlook and ease pressure on energy-importing economies, India included. But the pattern of repeated near deals followed by military flare-ups could weaken global growth while resulting in a sharper snap back in oil and treasury yields.
United States
Resilient Growth Faces Mounting Inflationary Pressures
The US economy continued to demonstrate resilience during the first quarter of 2026, with GDP growth revised higher to an annualized 2.1% from the second estimate of 1.6%, supported primarily by stronger business investment. Inflationary pressures intensified further during the month, reinforcing concerns that the recent energy shock is becoming more broad-based. Headline consumer inflation accelerated to 4.2% in May, marking its highest level since April 2023 and extending a third consecutive monthly increase, largely driven by surging energy prices following the Middle East conflict. Meanwhile, the Federal Reserve’s preferred inflation measure, the Core PCE index, increased to 3.4%, remaining well above the central bank’s 2% target. Producer prices also remained elevated at 6.5%, with higher fuel and industrial commodity prices highlighting persistent pipeline cost pressures.
Reflecting these developments, the Federal Reserve kept the federal funds rate unchanged at 3.50%-3.75% for a fourth consecutive meeting while adopting a more cautious outlook under new Fed Chair Kevin Warsh. Policymakers revised their inflation projections significantly higher while modestly lowering their 2026 growth outlook, acknowledging that supply-side shocks continue to complicate the growth outlook.
Labour market conditions remained relatively healthy although signs of moderation began to emerge. Non-farm payrolls increased by 57,000 during June, marking the weakest monthly employment gain in four months. However, the unemployment rate declined to 4.2%, largely reflecting lower labour force participation rather than stronger hiring. Job openings nevertheless remained elevated at 7.59 million, indicating that underlying demand for labour continues to remain resilient despite slowing payroll growth.
Retail sales rose by 0.9% in May, exceeding expectations as higher gasoline prices and continued discretionary spending supported overall consumption. Industrial production, however, increased only 0.1%, reflecting slower manufacturing activity despite continued strength in mining output. On the trade front, the US trade deficit narrowed modestly to $55.9 billion in April as exports (+2.6%) outpaced import growth (+2%).
Overall, the US economy continues to exhibit resilient economic growth, healthy consumer spending and a largely resilient labour market. Nevertheless, the Middle East situation would be closely monitored particularly those stemming from higher energy prices.
Euro Area and UK
Policy Divergence Supports Stability Amid Persistent Uncertainty
In the Euro Area, inflationary pressures began to moderate, although policymakers remained cautious regarding the persistence of energy-related risks. Consumer inflation eased to 2.8% from 3.2% in May as energy, services and food inflation softened, marking the lowest reading since February while remaining above the European Central Bank’s 2% target. Producer price inflation was at a modest 0.2% MoM in May as lower energy costs offset increases across non-energy goods. Despite the moderation in inflation, the ECB raised policy rates by 25 basis points for the first time since 2023, citing elevated uncertainty surrounding global energy markets and the risk that Middle East-related supply disruptions could rekindle inflationary pressures. The ECB simultaneously revised its inflation projections higher for both 2026 and 2027, underscoring its commitment to maintaining price stability. Retail sales rebounded modestly (+0.1% MoM) during May following the previous month’s contraction, supported by stronger food consumption, while industrial production for April expanded by 0.1%. Labour market conditions remained resilient with unemployment holding at a record low of 6.2%, highlighting continued strength despite a challenging macroeconomic environment.
In the United Kingdom, economic growth remained relatively stable despite a slight downward revision to first quarter GDP growth to 0.9%. Household consumption and government spending continued to support activity, offsetting weakness in production and construction sectors. Inflation remained unchanged at 2.8%, its lowest level in over a year, reflecting easing housing and food inflation, while the Bank of England maintained the Bank Rate at 3.75% amid continued uncertainty surrounding global energy markets. Consumer demand strengthened during the month, with retail sales rebounding 1.2%, supported by stronger online spending, promotional activity and favourable weather conditions. Labour market conditions also improved modestly as unemployment edged lower to 4.9%, while the trade deficit narrowed to £8.44 billion on the back of stronger exports (+2.4%) and lower imports (-0.7%).
Overall, Europe presents a mixed but stable picture. Inflationary pressures have eased across the Euro Area, although policymakers remain cautious regarding future energy-related risks, while the United Kingdom continues to benefit from moderating inflation and resilient domestic demand despite a softer growth environment.
Asia
Diverging Domestic Demand Shapes Regional Outlook
China’s economy continued to exhibit contrasting trends as resilient industrial activity and robust trade performance were offset by persistent weakness in domestic consumption. The People’s Bank of China maintained its benchmark lending rates at record lows for a thirteenth consecutive month, signaling continued policy support amid slowing domestic demand and elevated external uncertainty.
Industrial production strengthened during May, expanding 4.5% year-on-year as manufacturing activity improved. Trade surplus, on the other hand, widened to $ 105.43 billion with exports surging 19.4% to a record high amid continued external demand and inventory rebuilding ahead of potential energy-related disruptions. Meanwhile, imports jumped 27.4% yoy to USD 271.35 billion, above expectations of 25%, and accelerated from 25.3% growth in April amid the government's efforts to boost domestic consumption. Domestic demand, however, remained weak. Retail sales for May contracted 0.6%, marking the first decline since late 2022 as discretionary spending weakened significantly across automobiles, home appliances, furniture and construction-related goods. Consumer inflation remained subdued at 1.2%, reflecting weak household demand despite higher transportation costs arising from elevated global energy prices. Labour market conditions improved marginally with urban unemployment declining to 5.1%.
In Japan, economic momentum continued to strengthen as domestic demand remained resilient. First-quarter GDP growth was revised to an annualized 1.8%, supported by stronger private consumption, government expenditure and public investment. Retail sales accelerated sharply to 5.3% in May, the strongest pace since late 2023, reflecting stronger wage growth and continued government stimulus measures. Labour market conditions remained strong with unemployment holding at 2.5%. Inflation edged higher to 1.5% following the gradual withdrawal of government energy subsidies, although consumer price pressures remained relatively contained. Producer price inflation, however, accelerated sharply to 6.3%, highlighting rising input costs linked to higher global energy prices. Reflecting growing confidence in underlying inflation, the Bank of Japan raised its policy rate by 25 basis points to 1.0%, its highest level since 1995, citing the risk that elevated energy prices could lead to broader inflationary pressures. Meanwhile, Japan’s trade deficit narrowed considerably to JPY 378.7 billion as exports (+17%) continued to benefit from resilient global semiconductor demand and outpacing imports (+12.5%).
Overall, Asia continues to display diverging economic trends. China remains supported by industrial activity, exports and accommodative policy, although weak domestic consumption continues to weigh on the broader recovery. In contrast, Japan is benefiting from stronger domestic demand, resilient labour market conditions and improving economic growth.
India
Economic Resilience Persists Despite Rising Cost Pressures
India continues to supported by resilient domestic activity despite increasing inflationary pressures arising from higher global energy prices. Industrial production accelerated to 5.1% in May, exceeding market expectations as stronger electricity generation offset continued weakness in mining activity, highlighting the resilience of domestic manufacturing and infrastructure demand.
Inflationary pressures, however, strengthened during the month. Consumer inflation increased to 3.9%, remaining within the Reserve Bank of India’s comfort range despite reaching its highest level since early 2025. Food prices continued to accelerate amid higher energy and fertilizer costs, while wholesale inflation surged to 9.68%, the strongest increase since September 2022, driven by substantial increases in fuel, crude oil and manufacturing costs.
Industrial output in India expanded by 5.1% from the previous year in May of 2026, picking up from the 4.9% increase in the previous month and ahead of market expectations of 4.7%. Infrastructure activity remained positive although growth moderated to 0.5%, with stronger electricity generation and continued expansion in steel and cement output offset by weakness in refined petroleum products and coal production. Meanwhile, labour market conditions softened modestly as unemployment rose to 5.5%.
Overall, India’s macroeconomic fundamentals remain robust, supported by resilient industrial activity, infrastructure spending and domestic demand. However, persistent inflationary pressures arising from elevated global energy prices continue to pose near-term risks to India’s growth momentum.
Conclusion
The global macroeconomic environment continues to be shaped by resilient economic activity alongside geopolitical uncertainty. While economic growth has generally remained stronger than anticipated across most major economies, concerns over inflationary pressures have eased in light of latest developments prompting central banks to maintain a cautious but status quo policy stance.
Going forward, the trajectory of inflation and monetary policy will be dependent on the durability of Middle east truce. Until it is cemented policymakers and investors are likely to remain cautious while navigating uncertainty risks.
At Chola Securities, we remain steadfast in our commitment to helping you navigate these complexities with clarity and foresight. As always, we aim to align your investments with evolving opportunities while ensuring resilience against emerging headwinds.
We sincerely thank you, our valued clients and investors for your continued confidence and partnership. Together, we look forward to embracing the challenges and opportunities of the months ahead, ensuring sustained growth and success.
Regards,
N Senthilkumarh
President, Chola Securities