Hedge your bets to prepare for a perilous summer

Financial Times UK

11 Jul 2026

Katie Martin katie.martin@ft.com

Financial markets are rolling into the summer with a nearperfect set-up for some

outbreaks of madness.

The summer months are always a fertile time for market shakeups. When senior

traders and investors head to the beach, often leaving a more junior crew behind,

trading volumes tend to shrink, and the lubrication behind markets evaporates.

Gaps open up where lots of tradeable prices used to be, making it easier for stocks,

bonds, currencies and everything in betwteen to swing around based on little to no

new information.

One lively recent example of this was in 2024 when a modest disappointment on

some US ination data hit the dollar unusually hard, whacked up the yen and

hammered tech stocks. It quite quickly got out of hand, with Japanese stocks falling

12 per cent in a day and wild talk of emergency US rate cuts.

This year, stocks are entering what Emmanuel Cau at Barclays calls a “perilous

summer period”, with lots of powerful cross-currents under the surface of apparently calm market benchmarks and a high-stakes second-quarter earnings season

just ahead.

Investors and analysts tell me they are keeping a close eye on a few potential hotspots.

The rst is, as always, the Federal Reserve. Its new chair Kevin Warsh has put

investors somewhat on edge with his determination to generally say less and give

less guidance on the central bank’s likely next steps. Overall, this is fair enough — it

is not his job to hold the hand of market participants, after all, and a slightly

slimmed-down and more co-ordinated approach to external communication might

be benecial.

But mix in a pretty punchy reformist agenda requiring careful choreography, as

Warsh has done, and the brittle situation in and around Iran, with all of the potential that brings to re up ination, and you nd yourself in a tricky spot. US government bonds weakened somewhat this week precisely because investors do not

know whether Warsh will disregard the latest small-but-meaningful rise in oil

prices. They do not have a good sense of what direction he will seek to drive the Fed

in next. “It’s going to be much harder to read the Fed,” Yie-Hsin Hung, chief execut-ive of State Street Investment Management told me this week. “That’s going to introduce volatility and uncertainty.” Any further escalation in the on-again-off-again

war with Iran would really drag this to the fore.

The other rake just begging to be stepped on is, as in 2024, the Japanese yen. The

currency has crept to its weakest point against the dollar in 40 years, with the dollar

this week poking its nose above ¥162 as investors bet that Japanese authorities will

allow ination to run hot (hot for Japan, that is), with a cautious approach to raising

rates.

Traders are on high alert for further interventions to try to stabilise the currency, in

part because that would involve Japanese authorities selling dollar assets, chiey

US government bonds, which could easily ripple across global debt markets, and in

part because there’s thought to be a lot of so-called carry trades out there, with

cheaply borrowed yen used to buy other assets around the world. If the yen did

spring meaningfully higher that would sweep the legs out from under those trades

and potentially squeeze out the pressure in places that are now hard to predict.

On a similar note, as the Bank of England pointed out this week, leverage (or borrowed money) has been a powerful and rapidly growing force behind robust stock

markets in recent months. That is never a source for comfort.

The third thing to watch is just the general lack of conviction and condence about

the global macroeconomic regime, particularly as some of the big trends that

investors leapt on at the start of the year have zzled out. The price of oil collapsed

despite the howls of energy experts warning of impending doom — it turns out

none of us understands energy supplies as well as we thought. Gold — superstar of

the start of 2026 — just suffered its worst month since 2008, with a drop of over 11

per cent.

Big Tech stocks that have been champions of global markets for months have been

clobbered. Barclays calculates that together, Apple, Meta, Amazon, Alphabet,

Microsoft and Nvidia have lost $2tn in market capitalisation since October last year

while chip stocks have rocketed in often volatile fashion. But weirdly, whizz-bang

$5tn chips giant Nvidia now trades on a similar price-toearnings ratio as snacks

company Hershey. Nvidia’s stock is still up on the year so far, but investors are no

longer looking on it with the same awe.

After this clear-out, shocks in either direction are equally possible — pockets of

markets could overshoot for no good or sustainable reason.

All in all, conviction is low, condence is shot, stuff that worked well for investors

has stumbled, the war in Iran rumbles on and the risk of slip-ups is high.As Vincent Mortier at Amundi put it in a recent presentation, the only answer is to

hedge your bets and spread your risks as much as possible.