Author: Fiona Craig

easyJet (LSE:EZJ) has reached agreement in principle on the principal financial terms of a possible all-cash offer from funds managed by Apollo, valuing the airline at £7.15 per share. The development follows the company’s earlier decision to withdraw support for Castlelake’s lower £6.90-per-share proposal. As discussions continue, easyJet has granted both potential acquirers access to due diligence materials while it considers the competing approaches.

UK Takeover Panel Aligns Bid Deadlines

The easyJet board has obtained approval from the UK Takeover Panel to extend Castlelake’s “put up or shut up” deadline until 7 August 2026, bringing it into line with Apollo’s timetable. Both bidders are now required to either submit a formal takeover offer or announce that they do not intend to proceed by the same deadline.

The airline stressed that there is no assurance either party will make a binding proposal and advised shareholders not to take any action at this stage. The aligned timetable leaves open the possibility of a competitive bidding process while maintaining uncertainty over the outcome.

Profit Recovery Supports Outlook Despite Near-Term Risks

easyJet continues to benefit from improving operating performance and a solid financial position, although softer free cash flow remains an area to watch. The company’s balance sheet provides flexibility, while ongoing efficiency initiatives are expected to support future profitability.

From a technical perspective, the shares continue to display positive momentum, trading above key moving averages with supportive MACD signals. However, elevated RSI levels suggest the stock may be overbought in the short term. Valuation remains relatively balanced, with a price-to-earnings ratio of around 12 and a dividend yield close to 2%. Management has also expressed cautious confidence in the company’s outlook, highlighting healthy liquidity and cost-saving measures while acknowledging ongoing fuel cost pressures and signs of softer forward booking demand.

About easyJet

easyJet plc is a UK low-cost airline focused on short-haul passenger travel across Europe. The company serves a broad network of leisure and business destinations, offering competitively priced flights while competing with both low-cost carriers and full-service airlines on many of Europe’s busiest routes.

Capita plc (LSE:CPI) has been awarded a five-year extension to its Road User Charging agreements with Transport for London (TfL), strengthening its long-standing role in managing key elements of the capital’s road charging network. The renewed contracts, which have a combined value of approximately £424.6 million, cover both Business Operations and Enforcement Operations for the Congestion Charge, Ultra Low Emission Zone (ULEZ), Low Emission Zone (LEZ) and Tunnels User Charging schemes. The new term runs from October 2026 until September 2031, with the possibility of a further two-year extension. The award supports Capita’s recurring revenue base while reinforcing its position as a strategic delivery partner for TfL.

Long-Term Partnership with Transport for London

Capita has supported TfL’s road charging programmes since 2016, providing integrated technology platforms, operational management, customer service functions and specialist supply chain expertise. The latest contract extension reflects TfL’s continued confidence in the company’s ability to operate and develop these critical transport services.

The renewed agreements also provide greater visibility for Capita’s public sector transport operations, enhancing its presence in urban mobility and traffic management while ensuring continuity across London’s road charging infrastructure.

Financial Challenges Continue to Weigh on Outlook

Despite securing a significant long-term contract, Capita continues to face broader financial headwinds. The company has experienced declining revenue, returned to loss-making performance and generated uneven cash flow, while leverage remains elevated due to a relatively limited equity base.

Market sentiment also remains cautious, with technical indicators pointing to a sustained downward trend and weak price momentum. Valuation metrics offer limited support, as the company remains loss-making and does not currently provide a dividend yield.

About Capita plc

Capita plc is a technology-enabled business services provider serving both public and private sector organisations. The company combines artificial intelligence, data, digital technology and operational expertise to help government bodies, regulated industries and commercial customers improve service delivery, increase efficiency and manage complex operational processes.

Goldman Sachs expects investor attention to increasingly shift toward the upcoming U.S. midterm elections, warning that political uncertainty could lead to higher volatility in the S&P 500 during the months ahead.

The bank said historical election cycles suggest that uncertainty surrounding economic policy tends to increase as the vote approaches, creating a less stable environment for equity markets.

Macro Risks Expected to Become More Influential

“In past cycles, economic policy uncertainty has usually risen in the August ahead of midterm elections and remained elevated in the subsequent few months,” strategists led by Ben Snider said in a note.

Goldman argued that this pattern supports maintaining exposure to equity index volatility.

While low correlations between individual stocks have helped suppress overall index volatility, the bank believes that effect will weaken as investors place greater emphasis on macroeconomic developments.

It expects “increased focus on macro issues including elections, geopolitics, and interest rate volatility” to become a more important driver of market performance once earnings season concludes.

History Points to Weak Pre-Election Returns

According to Goldman Sachs, the S&P 500 has typically struggled to generate meaningful gains in the period leading up to U.S. midterm elections.

Looking at the 13 election cycles since 1974, the index recorded a median return of 0% from early August through Election Day.

Performance has generally strengthened after the vote, with returns having “typically improved post-election,” producing a median gain of 6% over the following three months.

Investor Positioning Often Improves After the Vote

The bank added that mutual funds and overseas investors have historically reduced their exposure to U.S. equities before midterm elections before increasing allocations once political uncertainty subsides.

Goldman Sachs believes election-related developments, alongside geopolitical events and interest rate movements, are likely to play a larger role in determining equity market volatility over the remainder of the year.

HSBC believes recent weakness across risk assets has largely run its course and says improving market sentiment continues to support additional gains for global equities.

Chief Multi-Asset Strategist Max Kettner said that despite a series of disruptive events over the past two months, equity markets have demonstrated impressive resilience.

Multiple Shocks Failed to Derail Global Markets

The bank highlighted a number of significant developments, including a $30 increase in oil prices after tensions escalated in the Middle East, a 40% decline in Asian memory stocks, sharp losses among momentum shares and a 50% retreat in SpaceX’s share price from its intraday high.

“And, yet, nothing has happened,” Kettner wrote, noting that global equity markets remain only about 1% below the record levels reached in early June.

Strong Earnings Offset Economic Concerns

HSBC argued that investors have become considerably more cautious on economic growth while continuing to underestimate corporate earnings.

The bank noted that 12-month forward earnings estimates for the S&P 500 have increased by another 5.5% over the past year, supported by a broad-based second-quarter earnings season.

It also pointed to more reasonable equity valuations, with the forward price-to-earnings ratio now roughly two turns below the 21.5 multiple seen before the Middle East conflict intensified.

Positive Positioning Remains Intact

HSBC believes higher bond yields have reduced the impact of rising oil prices on equities and suggested that a further reversal of “U.S. exceptionalism” could make lower yields supportive for stock markets.

The bank also said the recent decline in hyperscaler debt “masks lower issuance and strength elsewhere.”

HSBC continues to recommend a “max OW equities” allocation, while favoring high-yield debt and emerging-market credit over U.S. Treasuries, Japanese government bonds and oil.

The bank said the disappearance of its sentiment-based sell signal reinforces its expectation that global equities can continue moving higher.

Global markets continue to show resilient investor positioning, although leadership is becoming increasingly concentrated across selected regions and sectors, according to Citi.

The bank said recent trading patterns suggest investors remain optimistic overall, but differences between major equity markets indicate that underlying market conditions are becoming more fragile.

U.S. Investors Favor Large Caps While Tech Weakens

Citi noted that investors continued adding exposure to the S&P 500 over the past week despite softer performance across the broader U.S. market.

The increase reflected a combination of new bullish positions and investors closing existing short trades.

By contrast, the Nasdaq and Russell 2000 experienced heavier short selling, highlighting weaker sentiment toward technology and small-cap stocks.

“Positioning remains mildly bullish across large caps; however, Nasdaq longs remain largely in loss, leaving downside risks elevated,” the strategists said.

Europe Continues to Attract Investor Interest

Europe recorded one of the strongest improvements in positioning, according to Citi.

The bank highlighted growing long exposure and the possibility of additional short squeezes, particularly in the FTSE, where “virtually all shorts in loss” could encourage further buying if market gains persist.

The Euro Stoxx 50 also recovered from recent weakness, while European banks maintained stable bullish positioning.

The DAX remained the weakest major European benchmark, with positioning continuing to deteriorate.

Rotation Toward China Faces Technology Risks

In Asia, China’s A50 and Hong Kong’s Hang Seng benefited from continued short covering, whereas Japan’s Nikkei and South Korea’s KOSPI experienced weaker positioning.

“The key risk over the coming weeks is whether further pressure in AI/Tech accelerates deleveraging, or whether momentum continues in Europe and China extending the rotation,” the strategists said.

Citi believes the next phase of market leadership will largely depend on whether technology stocks stabilize or investors continue shifting capital toward Europe and China.

HSBC believes investor concerns over aggressive artificial intelligence spending by hyperscale technology companies have become the primary force shaping AI-related equity markets, replacing other themes that have driven sentiment throughout 2026.

The bank has developed a quantitative clustering model to determine which AI narrative is influencing global markets by monitoring the performance of hyperscalers, semiconductor manufacturers, software companies and Chinese internet stocks.

AI Narratives Continue to Shift Investor Positioning

According to HSBC, investors have repeatedly rotated between competing AI themes this year, creating significant swings in equity performance.

The bank said investors “jump between competing AI narratives,” citing the release of Moonshot’s Kimi K3 model and reports of growing lithography competition from mainland China as recent events that have influenced market direction.

Its framework categorizes market behavior into five distinct AI-related scenarios.

Overspending by Hyperscalers Tops the List

HSBC currently assigns the greatest probability, 37%, to the “hyperscaler overspend” scenario.

In this environment, companies supplying data center infrastructure and semiconductor technology outperform, while businesses responsible for the largest capital expenditures underperform “at the expense of the capex spenders.”

The model suggests annualized returns of 12.3% for technology hardware stocks and 11.8% for semiconductor companies, supporting continued strength in markets such as Taiwan and South Korea.

Defensive Rotation and China Competition Also Remain in Focus

The bank gives a 26% probability to “AI positioning capitulation,” where investors move away from crowded AI trades into defensive industries including pharmaceutical and biotechnology companies, resulting in a 14.3% decline for semiconductor stocks.

HSBC also assigns a 20% probability to “China competition concerns,” arguing that the launch of Kimi K3 has renewed investor attention on Chinese competition and encouraged capital flows into mainland China’s media and consumer services sectors.

The remaining scenarios include “AI disruption fears” at 9% and “AI euphoria” at 8%. In the latter case, AI supply chain companies lead market gains, while semiconductor stocks post annualized returns of 19.1%.

HSBC said the model provides investors with a framework for evaluating how changing AI narratives influence sector leadership and the relative performance of emerging-market equities.