Monday Digest
Posted 13 July 2026
Markets keep calm and carry on with business
Just as markets had downgraded Middle East risks, they flared up again – and once more the reaction was strikingly measured. Spot oil spiked 12% after Iran targeted ships in the Strait and US forces hit Iranian targets over two days. Iran’s response – up to 15 missiles and dozens of drones – was reportedly intercepted before impact, and with technical discussions between the two sides continuing, Brent has settled back, falling 5% from Tuesday’s $80.50 peak. Bond yields and equities followed the same pattern: a rise, then a retreat.
We observe that markets are increasingly focussed on company stories rather than geopolitics. The chip sell-off ran its near-term course, helping tech outperform, while SK Hynix’s ADR share sale in the US – the third-largest listing in global history – went well despite no discount, even as its diluted Korean share base fell another 10% (given the company’s market capitalisation size, a distortion worth remembering when reading current emerging market index performance).
M&A is coming up on the rails to challenge for investor attention. The battle to take easyJet private, with bids from Castlegate and Apollo, is one of several foreign bids for discounted UK companies: Segro, Schroders and UK Power Networks have all been picked up, mostly by private equity. After a poor 2025 and first half of 2026 for listed private equity (“SAASpocalypse” exposure), the step-up in M&A may signal improving liquidity – which would support stable-to-rising valuations and a broadening of equity performance. Less happily, the UK’s CMA approved the Hovis-Allied Bakeries merger only because both were loss-making; as a result, cheap bread is likely to be less cheap, and high interest costs mean debt holders in consumer-facing businesses may face write-downs.
Meanwhile, Japan’s finance minister Satsuki Katayama announced a multi-year budgeting framework, with pension funds “encouraged” to buy domestic assets – bond yields duly fell. Instructive, perhaps, for an incoming UK Chancellor, especially with Business Secretary Peter Kyle telling the Guardian he will consider mandating UK investment “because I’m in a rush”. Next week, US bank earnings kick off the second-quarter season – and the focus shifts further from geopolitics to corporates.
UK 1840s Railway Mania: teachable takeaways for today’s AI boom
Commentators usually compare the AI buildout to the dotcom bubble; we look further back, to Britain’s 1840s Railway Mania. Early lines were highly profitable and expansion was self-sustaining – building railways required materials that themselves needed rail transport. Investment poured in (Charles Darwin and John Stuart Mill included), until capital goods demand outran what the industrial base could provide, leading to inflation. This strong growth paired with loose financial conditions forced the Bank of England to raise rates in late 1845, and – as almost always – these rate hikes burst the bubble. By 1847 the most popular shares had fallen around 80% from the peak. Parliament had approved some 9,500 miles of new lines in 1846, with an estimated 8-12% of GDP invested; still, about a third were never built.
Yet the burst was not the end. Growth stayed strong, railway utilisation accelerated after 1850, a second boom followed in the 1860s, and the network laid the groundwork for a century of British industrial strength. Many bubbles are a sign of something genuinely valuable – early on, though, we just do not yet know how much of it we need.
The key warning sign for a mania ending in a bust is vast capital required before meaningful profits can be generated – true of the railways and of the TMT bubble. Today’s AI capex, by contrast, has mostly been funded by recycling profits from already hugely profitable businesses. At the moment big tech valuations are falling not because their share prices are dropping but because profits are outpacing them. As long as AI-driven expansion keeps profits strong – and monetary policy does not over-tighten liquidity – it is hard to see share prices substantially falling. And even a burst bubble would not stop AI being an economically and socially transformative force over the long term.
European banks – what European banks?
Italy’s UniCredit is on the cusp of controlling Germany’s Commerzbank, having acquired 47.6% of its shares after a surprisingly large take-up of its €44bn offer. Political obstacles remain – the German government has pushed back strongly, and BaFin is investigating following a criminal complaint from Commerzbank’s workers’ council – but few expect these, or the ECB approval process, to stop CEO Andrea Orcel getting his prize.
The real story is what the difficulty reveals: Europe’s fractured banking system. Basel III capital rules effectively prevent assets raised in one country funding loans in another via subsidiaries, limiting the scale benefits of a multinational bank (though the branch model, used successfully by Nordea, is an exception). The banking union’s third pillar – a European deposit insurance scheme – remains missing, so national regulators and voters fear a supranational bank misusing their deposits. That is why Europe has so few successful cross-border commercial banks beyond Santander and Nordea, and why newer cross-border players are digital upstarts like Revolut and N26.
The barrier is ultimately political: governments favour national champions, and the benefits of integration are intangible to voters. Progress on the Savings and Investment Union has been minimal, despite Europe’s need to put its abundant savings to work. If a true banking union comes, UniCredit will be well placed to benefit – but this deal should not be read as a sign that the union is any closer.