Weekly Market Recap

Prime Minister Keir Starmer faced intense pressure to step down, with several government ministers resigning and growing speculation that Andy Burnham could launch a challenge for the leadership of the Labour Party. The political uncertainty dampened investor sentiment, pressuring both stocks and sterling.

UK retail sales fell by 3.0% year over year (YoY) in April, according to the British Retail Consortium. This was lower than the 12-month average growth of 1.8%.

Industrial production in the eurozone grew by 0.2% month over month (MoM) in March 2026, just shy of the 0.3% that had been expected. Intermediate goods and capital goods grew the most, while energy and nondurable consumer goods both saw falls in production. On a per-country basis, Germany’s industrial output declined, while France, Italy, and Spain posted increases in industrial production.

Unemployment in France climbed to a higher-than-expected 8.1% in the first quarter—the highest level since early 2021. The jobless rate among young people ages 15 to 24 remained elevated but nudged lower to 21.1% from 21.5%.

The May reading of Germany’s ZEW Indicator of Economic Sentiment rose to -10.2. Even though the index remained in negative territory, this reading represented a recovery from the -17.2 registered in April and surpassed market expectations of -19.8. Weak industrial production, rising energy prices, and inflation above 2% were cited as factors behind investors’ gloomy outlook.

China’s services activity expanded at a faster-than-expected pace in April, a private sector survey showed. The RatingDog China General Services Purchasing Managers’ Index (PMI) rose to 52.6 from 52.1 in March, while the composite PMI output index increased to 53.1 from 51.5. S&P Global said the improvement was driven mainly by stronger domestic demand and faster growth in new business, although export orders declined for a second consecutive month. The data suggested that domestic activity remained relatively resilient despite ongoing tariff uncertainty and softer external demand.

President Donald Trump and President Xi Jinping concluded a two-day summit in Beijing on 15 May, with both sides signalling support for stable relations. US officials said China was prepared to increase purchases of US agricultural and energy products, while both governments discussed mechanisms to manage disputes around semiconductors and rare-earth supply chains, although no major rollback of export restrictions was announced.

Xi said US-China economic ties were “mutually beneficial in nature,” while Trump described bilateral relations as “better than ever before.” At the same time, Xi reiterated that Taiwan remained “the most important issue” in bilateral relations and warned that mishandling the issue could jeopardise broader ties.

For markets, the summit appeared to reinforce expectations that Washington and Beijing remain focused on preventing renewed escalation in trade and technology tensions, helping limit downside sentiment across China and regional equities through the week. Trump also invited Xi for a state visit to Washington in September.

China’s PPI rose 2.8% YoY in April, accelerating from 0.5% in March and exceeding consensus expectations, marking the fastest pace since July 2022. The increase was driven partly by higher prices in commodity-related sectors, including nonferrous metals and oil and gas processing, as well as firmer demand linked to AI-related investment.

Consumer inflation also strengthened modestly, with the CPI rising 1.2% YoY versus 1% in March, supported by higher gasoline and gold jewellery prices despite continued weakness in food prices. Core inflation, which excludes volatile food and energy prices, also rose 1.2% YoY.

The data supported the view that industrial activity and pricing conditions are stabilising, reducing near-term pressure on Beijing to deliver broad-based monetary easing despite persistent external uncertainties and uneven domestic demand conditions.

China’s exports rose 14.1% YoY in April, accelerating from March’s reading and exceeding market expectations, while imports increased 25.3%, reflecting firmer domestic demand and higher commodity purchases. Exports to the US rose 11.3% from a year earlier despite ongoing tariff and export-control tensions ahead of the Trump-Xi summit.

Semiconductor- and AI-related shares were subject to some profit taking following strong recent gains, while financials and other value-oriented sectors benefited from rising domestic bond yields and growing expectations that the Bank of Japan (BoJ) would continue to normalise monetary policy. Investor sentiment was tempered by concerns that higher oil prices could weigh on Japan’s economic outlook through rising import costs and pressure on household consumption, given the country’s heavy dependence on imported energy.

The yen weakened to JPY 158.7 against the US dollar from JPY 156.7 at the end of the previous week. Suspected official intervention by Japanese authorities in the foreign exchange market in late April appeared to have only a temporary impact, with investors remaining focused on the divergence between the Fed’s relatively restrictive policy stance and the BoJ’s still-accommodative monetary settings. US officials echoed Japan’s view that excessive foreign exchange volatility is undesirable, while also noting that Japan’s strong economic fundamentals should ultimately be reflected in the exchange rate over time.

The yield on the 10-year Japanese government bond (JGB) rose to 2.71% from 2.47% at the end of the prior week. The JGB yield scaled to its highest level since 1997 as investors increasingly converged on the view that a BoJ interest rate hike could be imminent. The Summary of Opinions at the BoJ’s April meeting contained the view that the central bank had adopted a wait-and-see approach because it was difficult to foresee the impact of the situation in the Middle East. One board member opined that even if the situation in the Middle East remains unclear, given that the impact on Japan’s economy will become apparent to some degree, the BoJ may raise the policy interest rate from the next monetary policy meeting onward.

On the economic data front, Japan’s corporate goods price index, which measures input prices for Japanese firms, surged in April, advancing 4.9% YoY, ahead of consensus expectations for 3.0% and a revised 2.9% increase in March. Much of the gain was due to higher prices for petroleum and chemical products. Separate data showed that household spending fell 2.9% YoY in March, exceeding consensus expectations of a 1.3% decline and surpassing the 1.8% drop in March.

Australia's business conditions softened in April, reaching their second-lowest level since 2020. Business confidence improved slightly, but still remained at levels recorded during the GFC. Compositionally, trading conditions and employment both declined materially. New housing loan commitments, excluding refinancing, fell 3.8% quarter-over-quarter (QoQ) in value terms in the first quarter. The fiscal year (FY) 2027 Commonwealth Budget projects a deficit of around 1.0% of GDP over the next three years to the financial year 2029. While the overall spending projections have not changed significantly, there are large medium-term compositional changes. In particular, the reforms to reduce the favourable tax treatment of capital gains and limit negative gearing will reduce the attractiveness of investing in established housing and improve housing affordability. Australia wage growth increased 0.8% QoQ, 3.3% YoY in the first quarter of 2026, largely unchanged from the prior quarter and in line with consensus. Public-sector wages continue to grow faster than private-sector wages, although the gap has narrowed notably.

The Bank of Canada's April meeting minutes, released Wednesday, showed policymakers discussed a wide range of views on the rate path, held the policy rate at 2.25%, and acknowledged that tighter policy could be warranted if energy prices remain elevated for longer—comments that weighed on the Canadian dollar. Looking ahead, April CPI data due Tuesday is expected to show headline inflation jumping above 3%, driven in part by higher fuel costs feeding through to airfares and other goods, though CIBC's Avery Shenfeld noted this is unlikely to materially shift the Bank of Canada's near-term stance.

Last week, the MSCI All Country World Index (MSCI ACWI) lost -0.5% (9.1% YTD).

The S&P 500 Index finished the week higher by 0.2% (8.7% YTD) as optimism surrounding large-cap technology and artificial intelligence (AI)-related stocks was largely outweighed by concerns around accelerating inflation, rising Treasury yields, elevated oil prices, and lingering geopolitical uncertainty.

Within the S&P 500 Index—which closed at a record high on Thursday before pulling back on Friday—the energy sector advanced the most, while consumer staples and information technology also posted gains. On the other hand, the consumer discretionary, real estate, and materials sectors led declines.

Large-cap growth stocks outperformed their value counterparts, and small caps strongly underperformed large caps. The Russell 1000 Growth Index returned 0.7% (5.3% YTD), the Russell Value Index -0.8% (10.8% YTD) and the Russell 2000 Index -2.3% (13.1% YTD). The technology-heavy Nasdaq Composite edged down -0.1% (13.1% YTD).

In Europe, the MSCI Europe ex-UK Index ended the week with a -0.5% loss (3.6% YTD). European corporate results for the quarter have broadly shown robust earnings growth. However, across the region, geopolitical tensions continued to weigh on sentiment. US-Iran peace talks showed signs of stalling, raising fears that higher energy prices could lead to inflationary pressures and higher interest rates. Most major stock indices retreated. Germany’s DAX Index fell -1.6% (-2.2% YTD), France’s CAC 40 Index gave back -1.5% (-0.8% YTD), and Italy’s FTSE MIB Index declined -0.4% (10.4% YTD). Switzerland’s SMI increased by 1.0% (2.4% YTD). The euro weakened against the US dollar, closing the week at USD 1.16 for EUR, down from 1.18.

The FTSE 100 Index in the UK slipped -0.2% (4.2% YTD), while the FTSE 250 Index lost -1.0% (1.9% YTD). The British pound depreciated against the US dollar, closing at USD 1.33 for GBP, down from 1.36.

Japan’s equity markets posted gains over the week. The TOPIX Index rose 0.9% (14.6% YTD), and the TOPIX Small Index increased by 0.6% (14.6% YTD).

In Australia, the S&P/ASX 200 Index lost -1.2% (0.9% YTD) due to weak economic data and the negative impact of tax reform on Australian properties. Australian government bond yields moved higher, with the curve steepening, as ongoing energy disruptions in the Middle East put upward pressure on inflation. The Australian dollar weakened against the US dollar by 1.1%.

In Canada, the S&P/TSX Composite was down -0.7% (7.6% YTD).

The MSCI Emerging Markets Index dropped -2.4% (19.6% YTD). The Chinese, Taiwanese, South Korean, Indian and Brazilian markets contributed negatively.

China equities ended the week lower after early gains linked to the Trump-Xi summit and stronger-than-expected macro data faded later in the week. The onshore CSI 300 Index, the main onshore benchmark, lost -0.2% (5.4% YTD), while the Shanghai Composite Index moved -0.9% lower (4.5% YTD). Hong Kong's benchmark Hang Seng Index underperformed regional peers amid continued caution toward China's internet and export-sensitive sectors, declining by -1.4% (2.0% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, decreased by -2.4% (-4.4% YTD). Investor sentiment was initially supported by expectations for continued US-China stabilisation alongside resilient April trade and inflation data, although the absence of major policy breakthroughs at the summit limited follow-through buying.

In Venezuela, the country was back in focus this week after the government formally launched what could become one of the world’s largest sovereign debt restructurings. Authorities announced plans to restructure both sovereign debt and liabilities tied to state oil company PDVSA, with total obligations estimated at approximately USD 150 billion when unpaid bonds, arbitration awards, accrued interest, and commercial claims are included. Officials described the debt burden as “unsustainable” and said that they planned to release a macroeconomic framework and debt sustainability analysis next month as part of the process. The announcement also reflects broader efforts to reconnect Venezuela with international financial institutions after years of isolation following the country’s 2017 default.

Markets reacted positively to the news, with Venezuelan sovereign and PDVSA bonds rallying sharply as investors priced in the possibility of eventual normalisation and formal negotiations with creditors. Investors also appeared encouraged by improving engagement with the US and multilateral institutions, including potential discussions with the International Monetary Fund. Still, the restructuring process is expected to remain highly complex due to ongoing litigation, coordination among creditors, and the need for additional US sanctions relief before a full debt overhaul can proceed.

In Hungary, Péter Magyar took office as Hungary’s prime minister, and investors weighed the new government’s reform agenda against fresh currency and European Union (EU)-related risks. His government signalled a sharp policy shift from the prior administration, pledging to improve relations with the EU, restore policy predictability, and pursue a path toward euro adoption. New Finance Minister András Kármán said that the government aimed to meet the conditions for euro adoption by 2030 and bring the budget deficit below 3% of GDP, while also working to secure roughly EUR 10.4 billion in frozen EU recovery funds before they expire at the end of August.

Markets had already rallied on expectations of a more orthodox policy path, but the forint weakened after the National Bank of Hungary unexpectedly lowered the rate on its foreign-currency swap facility to 5.25% from 5.75%. Although the central bank said the move did not signal a change in its “strict and careful” monetary policy stance, some investors viewed it as a sign that policymakers may want to limit the currency’s strength. At the same time, Hungary’s desire to diversify—but not fully abandon—Russian energy imports could create tension with the EU, which is seeking to phase out Russian oil and gas. For investors, the near-term outlook looks more constructive than before, but Hungarian assets are likely to remain sensitive to central bank signals, the forint’s path, and whether the government can unlock EU funding without triggering new disputes with Brussels.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.9% (-0.4% YTD), the Bloomberg Global High Yield Index (hedged to USD) -0.5% (1.3% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index -1.1% (0.2% YTD).

US Treasuries fell over the week as yields increased across most maturities in response to higher energy prices and the week’s hotter-than-expected inflation data. Over the week, the 10-year Treasury yield rose by 23bps to 4.59%, the highest level in over a year, from 4.36% (up 43bps YTD). The 2-year Treasury yield increased by 18bps, ending the week at 4.07% from 3.89% (up 60bps YTD).

Over the week, the 10-year German Bund yield rose by 17bps, ending at 3.17% from 3.00% (up 31bps YTD). The 10-year UK gilt yield increased 26bps, ending the week at 5.17% from 4.91% (up 70bps YTD).