The bright minds setting strategy at the big investment banks broadly agree that three things could derail the rally in US equities: politics, the bond market and an alien invasion. At this point, two of the three have moved into the danger zone, while the third remains unproven, despite the United States recently publishing its classified UFO files.

Bank of America has put a name to the dynamic that has been in place for more than three years: the boom loop. It rests on the rapid growth in US households' equity wealth: $10,000bn of gains in 2025, $9,000bn in 2024 and $8,000bn in 2023, plus another $4,000bn since the start of 2026. In simple terms, gains feed further gains and reinvestment, driving risk assets higher. To complete the picture, AI offers an obvious destination for all that money. This boom loop is therefore chiefly threatened by politics and the bond market. So far, the political element has been especially colourful, but not genuinely damaging for equities, except during bouts of acute volatility. It is the twitchy variable, lurching in all directions, but ultimately it has not weighed on indices for long, even though drawdowns, the gaps between highs and lows, have at times been spectacular.

The bond market is another matter. First, it should be said that the bond market does not in itself necessarily cause equities to fall. What matters is what it reflects, or what it implies. Second, it is harder to shift than the equity market. When it starts moving, meaning when it begins to show signs of stress, it generally does so slowly. And the mechanisms set in motion can have deep, sometimes structural, consequences. In any case, the effects go well beyond a simple decline in earnings per share or a dividend that comes in a little lighter than expected. In other words, the discussion quickly moves into serious macroeconomic territory, and therefore into imbalances that are difficult to correct.

The US bond market has started to move, and not in the right direction. The recent reacceleration in consumer and producer prices has set alarm bells ringing. The cost of US debt has risen sharply. After climbing steadily, the 30-year yield has just touched 5.20%. You have to go back to 2007 to find it that high. And 2007 is a rather ominous year in financial markets, since it heralded the huge financial crisis of 2008. Even if past underperformance is no guide to future performance, that is enough to put investors on edge. The market is starting to price in several new factors: the growing burden of US debt - which is becoming more expensive - and a Warsh discount if the Fed's new chair is slow to act on rates for political reasons, given that Donald Trump wants lower rates. other factors include a reassessment of bonds' appeal, since if they offer attractive yields, equities mechanically lose some of their allure; and a stronger dollar, because if Treasuries become more attractive, buying flows lift the greenback.

Each event is well understood in isolation and is not necessarily catastrophic. But no one really controls how they interact, or the potential for feedback loops to take hold. So the market has become tense and is still hoping for a favourable outcome in Hormuz, which would open the door to lower oil prices and allow investors to believe that the acceleration in inflation will fade over time. On that front, Donald Trump continues to urge Iran to accept a deal to end the conflict, but Tehran has an incentive to drag things out in order to weaken the White House and negotiate better terms. Brent crude is still trading around $110 a barrel, up 80% since the start of the year. To put it plainly, and to return to a Bank of America study from which I have already used the earlier figures, US inflation becomes dangerous for equity markets once it reaches 4%. Over the past century, when CPI inflation has moved above 4%, the S&P 500 has fallen by an average of 4% over the following three months and 7% over the following six months. In April, CPI accelerated to 3.8%.

Against this backdrop, can Nvidia's results reignite equity markets? We will find out this evening after the Wall Street close. The world's most valuable listed company has the power to pull the market higher by delivering spectacular results and dazzling guidance for the entire technology ecosystem. Will that be enough to hide the other financial ailments of the moment? I have no idea, but a degree of frenzy could build ahead of the announcement during the US session. In the meantime, Wall Street fell for the third session in a row last night. Europe is less exposed to selling in technology stocks, but it is hardly looking relaxed either.

Elsewhere, the EU has finalised the text of its trade agreement with the United States after months of negotiations. But the tariff war has almost become a sideshow. Vladimir Putin arrived in Beijing last night seeking to strengthen ties between Russia and China.

In Asia, red is the dominant colour, with Japan down 1.4%, Hong Kong off 0.7% and Australia shedding 1.3%. Europe is set for a weaker open, while Wall Street futures are little changed.

Today's economic highlights:

See the full calendar here.

  • GBP / USD: US$1.34
  • Gold: US$4,466.31
  • Crude Oil (BRENT): US$110.83
  • United States 10 years: 4.67%
  • BITCOIN: US$77,126.1

In corporate news:

  • HSBC chief executive Georges Elhedery said AI would both eliminate and create jobs across finance, adding that the bank is retraining staff to adapt.
  • Britain's finance ministry is pushing major supermarket chains to accept voluntary price caps on staples such as eggs, bread and milk, in exchange for lighter regulation, according to two people familiar with the matter.
  • Embracer beats quarterly earnings forecasts and announces its split into two publicly traded entities.
  • The fraud investigation unit conducted unannounced inspections at Nestlé Waters in France. Nestlé is also facing media accusations of negligence regarding the recall of contaminated infant formula.
  • Ryanair believes the energy crisis could bring down European airlines.
  • Enel is launching a €2.5 billion bond offering.
  • KNDS is considering selling part of its stake in Renk, according to Bloomberg.
  • Google unveils its smart glasses, set to launch this fall, and its AI agent Spark.
  • Meta Platforms is opening access to WhatsApp for competing AI chatbots in Europe.
  • Northrop Grumman has secured a $697 million radar maintenance contract for the U.S. Marine Corps.
  • Today's key earnings reports: Nvidia, Analog Devices, The TJX Companies, Lowe's, Progressive Corp, Intuit, Target, Experian, Roivant, CSG N.V., Elia, Orkla…

See more news from UK listed companies here

Analyst Recommendations:

  • Babcock International Group Plc: Peel Hunt upgrades to buy from add and reduces the target price from GBP 15.82 to GBP 14.09.
  • M&G Plc: Barclays maintains its overweight recommendation and raises the target price from GBP 3.10 to GBP 3.40.
  • Admiral Group Plc: Morgan Stanley maintains its equalwt recommendation and raises the target price from GBX 2850 to GBX 3550.
  • Grainger Plc: Barclays maintains its equalweight recommendation and reduces the target price from GBP 2.10 to GBP 1.75.
  • Moonpig Group Plc: UBS maintains its buy recommendation and reduces the target price from GBX 320 to GBX 290.
  • 3I Group Plc: UBS maintains its buy recommendation and reduces the target price from GBX 3600 to GBX 2700.
  • Aston Martin Lagonda Global Holdings Plc: Jefferies maintains its hold recommendation and reduces the target price from GBX 60 to GBX 50.
  • Big Yellow Group Plc: Deutsche Bank maintains its buy recommendation and reduces the target price from GBX 1200 to GBX 1100.
  • Land Securities Group Plc: Goldman Sachs maintains its buy recommendation and raises the target price from GBX 690 to GBX 730.
  • Ig Group Holdings Plc: RBC Capital maintains its outperform rating and raises the target price from GBX 1600 to GBX 1850.