Barclays believes the next phase for equity markets will be determined by upcoming Big Tech earnings and a series of central bank meetings, as investors balance resilient corporate performance against mounting macroeconomic risks.
The bank said strong earnings have helped equities withstand higher bond yields, rising oil prices and renewed concerns over artificial intelligence spending, but warned that the investment backdrop is becoming more challenging.
Earnings Continue to Support Equity Markets
According to Barclays, early second-quarter earnings have exceeded expectations on both sides of the Atlantic, reinforcing confidence in corporate fundamentals.
Despite higher interest rates and elevated energy prices, markets have remained resilient so far this reporting season. However, strategists led by Emmanuel Cau said oil prices and bond yields have now reached levels where downside risks are becoming more pronounced.
Rising Oil Prices Reignite Inflation Concerns
With no breakthrough in the conflict between the United States and Iran, Brent crude has climbed back to around $100 per barrel.
Barclays said the move has pushed inflation expectations higher across both the United States and Europe, even though recent economic data pointed to softer inflation.
The firm believes persistently higher energy prices could complicate the outlook for central banks in the months ahead.
Central Bank Decisions Will Be Closely Watched
Investors are now turning their attention to monetary policy.
The European Central Bank has indicated that another interest-rate increase remains possible at its September meeting, while Barclays expects the Federal Reserve to leave rates unchanged next week but “emphasise their fight against inflation.”
The Bank of Japan is also expected to attract significant attention following recent hawkish signals suggesting a faster pace of policy tightening.
Barclays said the shift is “reminiscent of the summer 2024 carry trades unwind episode.”
The strategists added, “So the global policy easing cycle is over for good and risk assets have to adjust to the new reality of higher real rates, which rarely come without volatility.”
AI Spending Remains Under Scrutiny
Although Google delivered stronger-than-expected quarterly results, Barclays said the report has done little to calm investor concerns over the long-term sustainability of artificial intelligence investment.
With several major technology companies still due to announce earnings, the bank expects AI-related capital expenditure to remain one of the market’s primary areas of focus.
