Weekly Market Recap

The UK unemployment rate rose unexpectedly to 5% in the three months to March 2026, up from the 4.9% recorded in the three-month period ended in February. The number of job openings fell by 3.9% to 705,000—the lowest level in five years, according to the Office for National Statistics (ONS).

Annual inflation in the UK slowed to 2.8% in April, down from 3.3% in March and below the 3% expected. The ONS noted that an energy price cap introduced by the country’s regulator had helped to keep a lid on inflation.

The European Commission, the executive body of the European Union (EU), reduced its economic growth forecasts for the eurozone, citing a “major energy shock” and an “already volatile geopolitical and trade environment.” It now expects gross domestic product (GDP) to grow 0.9% in 2026, down from the 1.4% growth recorded in 2025 and below its previous estimate of 1.2%. The commission also updated its 2026 inflation forecast to 3%, up from the 1.9% it had previously expected.

Producer price inflation hit 1.7% in April, its highest level since May 2023. The rise was driven largely by intermediate goods and mineral oil prices. Capital goods prices also rose, particularly machinery. In contrast, prices for nondurable goods fell, highlighted by foodstuffs such as butter and pork.

A slump in exports narrowed the eurozone’s trade surplus to EUR 7.8 billion in March 2026, down significantly from the EUR 34.1 billion registered the same month in 2025. Shipments to the US were 38.8% lower on the year, reflecting the imposition of US tariffs introduced in April 2025. On an industry basis, some of the sharpest export declines were in chemicals, machinery and vehicles, and food and drink.

China’s April activity data missed consensus expectations and reinforced signs that first-quarter momentum is softening. Industrial output rose 4.1% YoY, slower than the 5.7% growth in March, while retail sales increased just 0.2% YoY, trailing March’s 1.7% rise and marking the weakest growth since late 2022. Fixed asset investment also contracted 1.6% in the January to April period, highlighting continued weakness in property-related activity and increasing market expectations for additional targeted policy support.

On the policy side, the People’s Bank of China kept the benchmark lending rates unchanged in May for the 12^th consecutive month. The one-year loan prime rate (LPR) was maintained at 3.00% and the five-year LPR at 3.50%, matching market expectations. The LPR serves as China’s benchmark lending reference rate for corporate and household borrowing, while the five-year tenor acts as the primary benchmark for mortgage pricing. The decision reinforced expectations that Beijing may continue to rely more on targeted fiscal and sector-specific support measures rather than broad-based monetary easing.

Meanwhile, on the geopolitical front, Russian President Vladimir Putin visited Beijing on 19-20 May, shortly after Chinese President Xi Jinping hosted US President Donald Trump for bilateral talks earlier in the month aimed at stabilising US-China relations. During Putin’s visit, China and Russia signed more than 40 agreements covering trade, energy, technology, and media cooperation while reaffirming their longstanding strategic partnership. The meetings highlighted Beijing’s efforts to maintain close ties with Moscow even as it seeks to stabilise relations with Washington. Investors also monitored discussions surrounding the proposed Power of Siberia 2 gas pipeline, which would more than double Russia’s current gas exports to China, although the two sides did not announce a final agreement during the visit. Putin also invited Xi to visit Russia next year.

The yen weakened to JPY 159.2 against the US dollar from JPY 158.7 at the end of the prior week. The move followed the release of April's national consumer price index, which showed that Japan's core inflation rate slowed to 1.4% year over year (YoY), its lowest reading in four years and below the Bank of Japan’s (BoJ) 2% target for the third consecutive month. The deceleration reflected an easing of energy-driven price pressures and the continued effect of government fuel subsidies, with the reading coming in below the consensus forecast of 1.7%. With the data reducing near-term pressure on the BoJ to tighten monetary policy, sentiment toward the yen turned more bearish, while improved risk appetite from the equity rally coincided with additional weakness in the yen. 

The yield on the 10-year Japanese government bond (JGB) rose to 2.75% from 2.71% at the end of the prior week, holding near its highest level in approximately three decades. Despite the softer inflation print, JGB yields remained elevated, as investors continued to weigh the medium-term inflation outlook against ongoing concerns over fiscal expansion. Bank of Japan board member Junko Koeda stated that the central bank should raise rates at an “appropriate” pace, signalling that a rate move as early as June could be on the table.

First-quarter GDP data released Monday showed Japan's economy expanded at an annualised rate of 2.1%, surpassing the consensus forecast of 1.7% and accelerating sharply from 0.8% in the prior quarter, driven by solid private consumption and a robust contribution from net exports. However, analysts cautioned that the figures do not yet fully capture the impact of elevated energy prices stemming from the Middle East conflict on corporate earnings and household income.

Australian consumer sentiment increased modestly but remained well below its historical average. Westpac noted that responses showed a slight improvement in sentiment following the Federal budget announcement. Australia's employment declined by 18,600 in April, much weaker than the market consensus of a 15,000 increase. The unemployment rate rose sharply from 4.3% to 4.5%, its highest level in five years, despite a tick down in participation. Youth employment dropped by 56,000, the largest monthly decline outside of the Covid period. Interestingly, aggregate hours worked increased 0.8% month-over-month (MoM), implying a 0.9% MoM increase in the average number of hours worked in April, reaching its highest level in almost three years.

April Consumer Price Index (CPI) came in below expectations at 2.8% YoY, versus consensus of 3.1%, with core measures also softer than forecast, reducing the likelihood of Bank of Canada rate hikes and pushing front-end yields lower. Currency options traders turned their most bearish on CAD in six weeks.

Prime Minister Carney warned that risk aversion threatens to overwhelm the economy amid US trade protectionism and geopolitical uncertainty, while urging business leaders toward bolder decision-making. Finance Minister Champagne signalled Canada intends to position itself as a key beneficiary of a global energy trade restructuring following the Iran conflict, with elevated oil prices driving energy stocks higher and pushing the S&P/TSX Composite to its highest close since 2 March, flirting with a fresh all-time record.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 1.3% (10.5% YTD).

The S&P 500 Index finished the week higher by 0.9% (9.7% YTD), rising for the eighth consecutive week, its longest winning streak since 2023. An equal-weighted version of the S&P 500 outperformed its market-cap-weighted counterpart.

After a volatile start to the week, sentiment improved as enthusiasm for artificial intelligence (AI) stocks—supported in part by chipmaker NVIDIA’s stronger-than-expected earnings—helped offset uncertainty over the Middle East conflict. Additionally, while headlines about a possible deal between the US and Iran remained fluid and sometimes conflicting, investors generally appeared to view negotiations as more likely than an escalation of military action.

Large-cap growth stocks underperformed their value counterparts, and small caps outperformed large caps. The Russell 1000 Growth Index returned 0.5% (5.8% YTD), the Russell Value Index 1.8% (12.8% YTD) and the Russell 2000 Index 2.7% (16.2% YTD). The technology-heavy Nasdaq Composite added 0.5% (13.6% YTD).

In Europe, the MSCI Europe ex-UK Index ended the week with a 3.2% gain (6.9% YTD), propelled by rising hopes of a de-escalation in the Middle East. Most major stock indices advanced. Germany’s DAX Index jumped 3.9% (1.6% YTD), France’s CAC 40 Index climbed 2.4% (1.5% YTD), and Italy’s FTSE MIB Index rallied 2.3% (13.0% YTD). Switzerland’s SMI increased by 2.3% (4.8% YTD). The euro was little changed against the US dollar, closing the week at USD 1.16 for EUR.

The FTSE 100 Index in the UK surged 2.8% (7.0% YTD), while the FTSE 250 Index put on 2.6% (4.5% YTD). The British pound strengthened against the US dollar, closing at USD 1.34 for GBP, up from 1.33.

Japan's equity markets were mixed during the week. The TOPIX Index rose 0.7% (15.4% YTD), but the TOPIX Small Index slipped -0.3% (14.2% YTD). Sentiment was buoyed by ongoing hopes for US-Iran peace negotiations, with reports indicating some progress despite unresolved sticking points on uranium enrichment and control over the Strait of Hormuz. Oil prices stabilised, which helped support risk appetite. Technology and AI-related shares led the advance, as strong earnings at some semiconductor companies revived global enthusiasm for the AI investment theme and broadly lifted Japan's chip-linked equities.

In Australia, the S&P/ASX 200 Index added 0.4% (1.3% YTD) as US-Iran de-escalation headlines outweighed weak economic data. Australian government bond yields moved lower, with the curve modestly steepening as the inflation concerns abated marginally. The Australian dollar weakened against the US dollar by 0.2%.

In Canada, the S&P/TSX Composite was up 1.9% (9.6% YTD).

The MSCI Emerging Markets Index gained 1.1% (20.9% YTD). The Taiwanese, South Korean, Indian and Brazilian markets contributed positively, while the Chinese market contributed negatively.

China equities retreated over the week after disappointing April activity data renewed growth concerns. The onshore CSI 300 Index, the main onshore benchmark, lost -0.3% (5.1% YTD), while the Shanghai Composite Index moved -0.5% lower (4.0% YTD). Hong Kong's benchmark Hang Seng Index declined by -1.3% (0.7% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, decreased by -2.3% (-6.5% YTD). Mainland equities proved relatively resilient compared with Hong Kong markets, where technology and export-sensitive sectors faced continued pressure from higher global yields and softer foreign risk appetite.

In Indonesia, the Bank of Indonesia unexpectedly raised its policy rate by 50bps to 5.25%, marking its first rate increase since 2024 and the most aggressive move since 2022. The move was framed by policymakers as a preemptive step to stabilise the rupiah and keep inflation expectations anchored. The rupiah had fallen to record lows before the decision, pressured by higher energy prices and concerns over Indonesia’s fiscal position. The currency firmed modestly after the hike, but investor caution remains elevated given expensive fuel subsidies, higher borrowing costs, and uncertainty around new export controls on key commodities such as palm oil and coal.

Indonesia also returned to international bond markets with a multi-tranche US dollar- and euro-denominated issuance. The deal underscored the government’s continued access to external financing, although it came during a difficult market backdrop and at a time when investors are demanding greater compensation for currency and fiscal risks.

In Türkiye, markets came under significant pressure this week after a court issued a ruling of “absolute nullity” that effectively erased the opposition Republican People’s Party (CHP) congress held in November 2023. The decision effectively removed CHP leader Özgür Özel and his executive board from office and reinstated former leader Kemal Kılıçdaroğlu as interim party head. The CHP denounced the ruling as a judicial “coup,” while supporters rallied outside party headquarters in protest. The decision triggered a broad risk-off move across Turkish assets, with equities falling sharply and trading temporarily halted.

Sovereign Eurobonds sold off, and domestic bond yields surged. The 10-year local government bond yield rose sharply, while the two-year yield also jumped as investors reassessed political risk, inflation risks, and the credibility of the policy backdrop. Although the lira remained broadly stable against the US dollar due to continued official intervention, reports indicated that the central bank sold billions of dollars in foreign exchange reserves to defend the currency amid capital outflows. The move added to broader concerns around reserve adequacy and policy sustainability at a time when inflation expectations and geopolitical risks remain elevated.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.4% (flat YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.2% (1.4% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index was little changed (0.2% YTD).

US Treasuries generated positive returns through most of the week, as yields rose across most maturities early in the week before largely reversing course on Wednesday after President Donald Trump said that the US was in the “final stages” of talks with Iran. Over the week, the 10-year Treasury yield decreased by -3bps to 4.56% from 4.59% (up 39bps YTD). The 2-year Treasury yield increased by 5bps, ending the week at 4.12% from 4.07% (up 65bps YTD).

Meanwhile, minutes from the Fed’s April monetary policy meeting highlighted heightened inflation concerns among policymakers, with a majority of participants indicating that further policy firming could be appropriate if inflation remained persistently above the central bank’s 2% target.

Over the week, the 10-year German Bund yield declined by -13bps, ending at 3.04% from 3.17% (up 18bps YTD). The 10-year UK gilt yield decreased by -27bps, ending the week at 4.90% from 5.17% (up 42bps YTD).