June began with an uncomfortable tension. Inflation rose again and growth signals are weakening, yet financial markets behaved in May as though the main risks were temporary. Equities rose broadly, risk premiums on corporate bonds declined and the oil price fell back to 93.77 dollars per barrel, despite ongoing uncertainty over the Middle East and energy supply. That picture looks reassuring, though it remains fragile, because it rests on one dominant assumption: that disruptions will be short-lived and that the investment wave around artificial intelligence stays strong enough to offset a weaker macro picture. Because of this, markets that provide little opportunity for disappointment might be disproportionately affected by a relatively minor setback.

We see that tension most clearly in equity markets. Global equities rose by 5.5% in May, developed markets by 4.9%, the United States by 5.7% and emerging markets by as much as 10.1%, while the eurozone stalled at 2.4% and the United Kingdom at 0%. The differences between regions are more telling than the absolute returns themselves. In the United States and parts of Asia, the investment cycle around artificial intelligence continues to drive earnings expectations, which gave emerging markets and US indices a clear lead. Europe benefits less directly and is more sensitive to higher energy prices, weaker consumer confidence and declining economic activity. It is becoming apparent that a relatively small portion of the market carries a large share of the equity returns, which leaves markets ever more sensitive to shocks the broad economy cannot absorb. This supports prices as long as expectations hold, and it also raises the chance of a sharp repricing once that growth engine loses persuasive power. Against this backdrop, we believe a neutral stance in equities is the logical choice.

Caution makes sense given the macroeconomic environment. In the eurozone, inflation rose in May to 3.2%, core inflation to 2.5% and services inflation to 3.5%, while the composite purchasing managers' index fell to 47.5 and points to a slight contraction in the private sector. The growth estimate for 2026 has been reduced to 0.8%. In the United States, PCE inflation came in at 3.8% and core inflation at 3.3%, while growth was revised to 1.6%. Real disposable income fell by 1.1% and the savings rate stands at just 2.6%. This fits an economy hit by a price and supply shock as underlying demand weakens. For central banks, room for manoeuvre is becoming increasingly limited: inflation leaves little room for easing, while the growth slowdown undermines the case for prolonged restrictive policy.

For that reason, the bond market deserves a closer examination. The yield on ten-year government bonds stood at 4.44% in the United States at the end of May, 2.93% in Germany and 3.05% in the Netherlands. These levels again offer meaningful returns, and more importantly, government bonds once again form a key stabilizing component in portfolios. If growth weakens further, they offer protection. If inflation expectations rise, they become the mechanism through which markets will rapidly reprice. Corporate bonds show a different picture. The risk premium on investment grade is only 73 basis points in the United States and 77 basis points in the eurozone, while high yield spreads stand at 272 and 268 basis points. Low spreads do not mean risk has disappeared, only that the market no longer prices it explicitly. That makes credit markets ess a return driver and more a potential amplifier of volatility, in an environment where an energy or inflation shock can quickly spill-over into broader markets.

The same asymmetry is visible in commodity markets, albeit more dramatically. Brent crude fell by 17.4% to 93.77 dollars per barrel, while the underlying vulnerability of the energy system has remained virtually unchanged. The market is pricing in relief rather than the reality of a fragile supply chain. Therefore, downside in the oil price appears limited, while upside surprises could have a disproportionate impact on rate expectations and inflation. Gold remained stable around 4,591 dollars per troy ounce. That may seem unspectacular. However, short-term pressure from higher rates is offset by structural demand from central banks, for whom gold now represents around 27% of global reserves.

Taken together, a market picture emerges in which stability has become dependent on a limited number of assumptions. A narrow group of companies benefiting from the investment wave around artificial intelligence carries the equity market, while the broader economic dynamic weakens. In bond markets, low risk premiums imply that setbacks will stay manageable, even as the recent acceleration of inflation raises the risk of abrupt rate movements. The decline in the oil price suggests relief, yet the energy system remains the most important source of uncertainty, with potential direct impact on both inflation and growth. If one of these assumptions is challenged, it will likely translate simultaneously into multiple markets. In such an environment, the risk lies not so much in what markets expect, but in how little room remains for deviations from it.

Against this backdrop, we keep the strategic positioning deliberately balanced. We maintain a neutral weight in equities. The structural growth dynamic offers support, while the uncertainty around geopolitics and growth remains too great for a heavier allocation. We have raised government bonds from underweight to neutral, because yields have become meaningful again and can fulfil a protective role within portfolios. Investment grade corporate bonds remain underweight given the low risk premiums, while high yield and emerging market debt remain neutral. The strategy is geared not towards a single outcome, but towards resilience, with diversification as the core mechanism to absorb shocks in a market that is becoming increasingly sensitive to deviations from the expected path.
 
Please find attached our last Asset Allocation Update for June.