Global markets closed the second quarter of 2026 with an improved sentiment, largely due to decreasing tensions in the Middle East, a drop in oil prices, and a resurgence in technology share values. This shift helped alleviate market risk, moving the focus back to AI-driven growth and the upcoming Q3 2026 earnings season, even as investors remain cautious about potential higher US interest rates and persistent inflation. Brent crude prices have fallen back below $73 per barrel, effectively removing the geopolitical premium that had been factored into prices during the recent conflict.
Asian markets, in particular, delivered exceptional performance. Japan's Nikkei recorded its best quarter ever with roughly a 38% gain, while South Korea's KOSPI surged over 70% in the quarter, primarily fueled by strong demand for semiconductor companies. Taiwan also saw significant gains, highlighting the dominant role of AI-related investments in regional equity markets. Equity investors are actively buying AI-related companies, driven by robust corporate investment and improving earnings expectations.
However, the US dollar has strengthened against its Group-of-10 peers, following hawkish remarks from new U.S. Federal Reserve chief Kevin Warsh and resilient US economic reports. This has reinforced expectations that the Federal Reserve will maintain a tighter monetary policy for an extended period. Meanwhile, the Japanese yen weakened to a 40-year low near ¥162 per dollar, prompting speculation about potential intervention by Japanese authorities. Gold has experienced its weakest month since 2008, struggling against a stronger dollar and higher real yields, as investor sentiment shifts away from defensive assets following the eased geopolitical tensions.
Despite the positive close to the quarter, investors are preparing for several key events in the opening days of Q3. Federal Reserve Chair Kevin Warsh is scheduled to speak at the ECB's Sintra conference, and the US non-farm payrolls report is anticipated to be a defining macro event of the week. A strong jobs report could further solidify expectations for a sustained period of higher interest rates. Standard Chartered's managing director of debt capital markets, Patrick Dupont-Liot, noted an "undertone of risk" amidst these developments.
