NVIDIA, Iran Relief and the Stagflation Test

Markets recovered as geopolitical pressure eased, but the rebound was not broad enough to signal a full all-clear. European equities rose just over 3%, the FTSE 100 gained 2.8%, UK gilts recovered around 2%, and the S&P 500 added just under 1%. China was the clear laggard, falling a little over 2%, showing that investors are willing to take risk again, but remain selective.

NVIDIA kept the AI investment case intact. Record revenue, stronger data centre sales, good guidance, a larger buyback and a higher dividend showed that AI demand is still feeding through into real earnings and cash flow. Some valuations are high, but the rally is not just based on optimism; in many areas, it is being supported by genuine profit growth.

The possible US–Iran off-ramp helped oil prices fall, but the inflation impact has not disappeared. Reports of a potential 60-day ceasefire extension and steps to reopen the Strait of Hormuz reduced worst-case fears. That is helpful for Europe, the UK consumer and oil-importing emerging markets, but earlier pressure on energy, transport, food and producer costs is still moving through the economy.

Central banks remain in a difficult position. The Fed is not under pressure to hike, but sticky inflation, tariffs, energy costs and AI-related infrastructure demand make near-term rate cuts harder to justify. In the UK and Europe, weaker growth is arriving at the same time as renewed price pressure, leaving policymakers with limited room to support the economy without risking inflation credibility.

The investment backdrop remains positive, but bond yields are the key risk to watch. AI earnings and the prospect of a Middle East de-escalation are supporting markets, while higher yields remain the main constraint. If oil continues to fall and inflation data soften, equities can move higher; if yields stay elevated, the rally becomes more fragile. For now, it makes sense to stay constructive, but not indiscriminately bullish.