Global markets weekly update

Major U.S. stock indexes rose during the holiday-shortened week, with several benchmarks closing at record highs, as investor sentiment was supported by rising hopes for a U.S.-Iran peace agreement, falling oil prices, and continued momentum in artificial intelligence (AI)-linked stocks. The tech-heavy Nasdaq Composite led among the major benchmarks, buoyed in part by AI optimism, while the Russell 2000, S&P 500, and S&P MidCap 400 Indexes also posted solid gains. The Dow Jones Industrial Average lagged but still rose 0.9%. Markets were closed Monday in observance of the Memorial Day holiday.

Early reports that the U.S. and Iran were moving toward a 60-day ceasefire extension and a reopening of traffic through the Strait of Hormuz helped push oil prices lower and supported risk appetite through much of the week. The narrative was complicated by reports of fresh U.S. strikes on Iranian targets, but investor sentiment remained positive through the end of the week amid reports suggesting that a deal was largely done and waiting on final approval.

The Bureau of Economic Analysis (BEA) reported that its personal consumption expenditures (PCE) price index rose 0.4% month over month in April, slowing from a 0.7% increase in March. On an annual basis, however, the PCE index rose 3.8%, up from 3.5% in March and the highest reading since May 2023. Core PCE—which excludes food and energy costs—rose 0.2% for the month, down from a 0.3% increase in March, while on an annual basis price growth ticked up to 3.3%, its hottest reading since November 2023. Personal spending rose 0.5%, while personal income was roughly flat.

Meanwhile, several Fed officials maintained a cautious tone on inflation during the week. Fed Governor Lisa Cook indicated she was prepared to raise rates if inflation continued moving in the wrong direction, while Vice Chair Philip Jefferson said policy was well positioned but inflation risks remained “tilted to the upside.” Other officials highlighted risks from energy prices, supply chain disruptions, and uncertainty around whether AI-driven productivity gains could ultimately affect inflation.

Other economic data were mixed. The BEA revised first-quarter gross domestic product (GDP) growth down to a 1.6% annualized pace from the initial estimate of 2.0%, primarily driven by downward revisions to investment and consumer spending. The revised figure was still an improvement from the 0.5% pace in the fourth quarter of 2025, with the quarter-over-quarter acceleration reflecting higher government spending and exports.

Elsewhere, April durable goods orders rose 7.9%, up from a revised 1.3% increase in March, driven by a 21.5% jump in orders for transportation equipment. Orders excluding transportation increased 1.1%. However, core capital goods orders, a proxy for business investment, fell 1.1% after a strong March gain.

U.S. Treasuries generated positive returns as yields decreased across most maturities, partially in response to declining oil prices and reported progress in the U.S.-Iran negotiations. (Bond prices and yields move in opposite directions.) Solid demand for the Treasury Department’s 7-year note auction also appeared to support sentiment during the week. As of Friday afternoon, the yield on the benchmark 10-year U.S. Treasury note had dropped to around 4.44% from about 4.56% at the end of the prior week.

High yield bonds also generated positive returns, although T. Rowe Price traders noted that some gains faded as investors questioned the durability of geopolitical headlines and weighed hawkish Fed signaling.

The pan-European STOXX Europe 600 Index advanced 0.14% in local currency terms. European investors continued to look for signs of progress on a U.S.-Iran agreement that could lead to the resumption of oil and gas shipments through the Strait of Hormuz. An MSCI EMEA Index rebalancing that took place on Friday led to some volatility. Among major stock indexes, Germany’s DAX closed 0.87% higher, France’s CAC 40 Index rose 0.83%, and Italy’s FTSE MIB gained 1.06%. In contrast, the UK’s FTSE 100 Index slipped 0.54% over the week. The London Stock Exchange was closed on Monday for the late May bank holiday.

The published minutes of the European Central Bank’s (ECB) monetary policy meeting in late April suggested that some members were open to raising rates. The central bank warned that the energy price shock had been both large and “highly persistent.” It noted that the war in the Middle East was weighing on energy markets, confidence, and near-term growth prospects. Separately, various board officials publicly signaled that a June interest rate hike is likely.

The seasonally adjusted unemployment rate in Germany unexpectedly slipped to 6.3%, down slightly from the 6.4% registered in April. However, the Federal Employment Agency noted that despite the small decline, it expects unemployment to rise over the next few months.

The Italian economy was in expansionary territory in the first quarter of 2026, as GDP grew 0.3%, topping the previous estimate of 0.2%. Domestic expenditure and exports drove the growth, according to the country’s National Institute for Statistics. Public expenditure was broadly flat.

European Union registrations of passenger cars grew 5.1% year over year in April, marking a third consecutive increase. This was slower than the 12.5% rate in March but still reflected strong consumer demand for electric vehicles, bolstered by tax incentives and subsidy schemes across several member states.

Shop price inflation rose by a more-than-expected 1.2% year over year in May, according to data from the British Retail Consortium. This was higher than both the 1.0% recorded in April and market expectations for a rise of 1.1%. The acceleration was attributed in part to high shipping and raw material costs resulting from the conflict in the Middle East. Food inflation moderated to 2.7% from 3.1% in April.

Japan's equity markets surged to historic highs during the week, with the Nikkei 225 Index rising 4.72% and the broader TOPIX Index gaining 1.66%. The dominant driver was developments between the United States and Iran, which tentatively agreed to a 60-day memorandum of understanding to extend the ceasefire and commence formal nuclear negotiations. For Japan, an economy heavily reliant on energy imports, the prospect of a durable reduction in Middle East tensions provided support. Technology and AI-related shares led the advance, with semiconductor and electronic component manufacturers surging on renewed enthusiasm for the AI build-out and the easing of supply chain concerns linked to the conflict.

Tokyo's core consumer price index rose 1.3% year over year in May, decelerating from 1.5% in April and coming in below the consensus forecast of 1.5%. The reading marked the sixth consecutive month of deceleration and the fourth straight month below the Bank of Japan's (BoJ) 2% target, as government energy subsidies and private school fee relief continued to weigh on prices. The softer inflation reading added a degree of uncertainty to the June rate-hike debate.

The yield on the 10-year Japanese government bond (JGB) declined to 2.66% from 2.76% at the end of the prior week, reversing a portion of the sharp steepening trend that had pushed the benchmark yield near its highest level in approximately three decades. The rally in JGBs was driven by a combination of softer domestic inflation data and the global bond market relief that accompanied the tentative ceasefire extension, which reduced the risk premium investors had demanded to compensate for the potential inflationary impact of an extended Middle East conflict on Japan's import costs.

The Japanese yen was little changed over the week, finishing at approximately JPY 159.3 against the U.S. dollar compared with JPY 159.1 at the end of the prior week. The currency opened the week on a slightly firmer footing as U.S. President Donald Trump's peace overtures reduced geopolitical risk premiums and eased anxiety over Japan's oil import bill. However, the yen quickly drifted back as persistent interest rate differentials between Japan's 0.75% policy rate and U.S. rates came back into focus. The Ministry of Finance released its monthly foreign exchange intervention data on Friday, confirming the scale of yen-buying operations conducted during the Golden Week holiday period.

China equities were mixed during the week as investors weighed stronger industrial profit data against renewed regulatory pressure on offshore brokerage activity. The CSI 300 Index edged up 0.97% while the Shanghai Composite Index fell 1.08% in local currency terms, according to FactSet. The Hang Seng Index retreated 1.65% during a shortened trading week, with Hong Kong markets closed on May 25 for a public holiday. Investor focus centered on China’s latest industrial profit data and the fallout from the China Securities Regulatory Commission’s (CSRC) crackdown on offshore online brokerages serving mainland investors.

China’s industrial profits jumped 24.7% year over year in April, accelerating from 15.8% growth in March. Profits in the January-to-April period increased 18.2% from a year earlier, supported by stronger earnings in energy and raw materials sectors as well as resilient external demand for technology-related exports, according to National Bureau of Statistics data. In contrast, several consumer-facing industries, including furniture manufacturing and automotive production, reported weaker profitability. The data helped stabilize sentiment toward industrial and upstream sectors, although weakness in consumer-facing industries and property-linked activity reinforced the view that China’s recovery remains uneven and dependent on external demand and policy support.

China escalated its crackdown on illegal cross-border securities activities, with the CSRC imposing fines and rectification measures on several online brokerages operating in mainland China without the required licenses. The regulator moved against UP Fintech Holding-owned Tiger Brokers, Futu Holdings, and Longbridge Securities for violating securities regulations governing cross-border brokerage activities. Futu and UP Fintech said they would cooperate with regulatory requirements, while Longbridge said it would implement the required rectification measures, according to Bloomberg News. The news triggered sharp declines in offshore-listed Chinese brokerage shares and weighed on Hong Kong market sentiment during the week.

South Korean equities were led by a concentrated semiconductor rally, reflecting the market’s role as an expression of the global AI and memory-chip cycle. SK Hynix was the standout, rising sharply and crossing the USD 1 trillion market-value mark, while Samsung gained support from reduced labor-disruption risk and positive high-bandwidth memory chip developments. The broader market, as measured by the KOSPI Stock Index, also advanced on improved geopolitical sentiment and lower oil prices, though leadership remained narrow and heavily dependent on chip-linked exporters rather than a broad-based improvement across sectors.

On the macroeconomic front, the Bank of Korea kept its benchmark rate unchanged at 2.50%, but its message was more hawkish than the headline decision suggested. The central bank raised its 2026 GDP and inflation forecasts, while two board members voted for a rate hike, signaling that the policy debate has shifted toward when tightening may resume. Korea’s external backdrop remains mixed: Strong chip exports and a large current-account surplus continue to support growth, but the won stayed weak amid energy price sensitivity, foreign flow pressures, and geopolitical risks tied to the Middle East.

South Africa’s markets were shaped by a mix of tighter monetary policy, rising fuel-led inflation, and shifting global oil and geopolitical sentiment. The South African Reserve Bank (SARB) raised the repo rate by 25 basis points (0.25 percentage points) to 7.0%, its first hike in three years, after policymakers judged that higher energy costs tied to the Iran war had increased the risk of broader price pressures. The decision was not unanimous, with four members supporting the hike and two preferring no change, highlighting the balance between containing inflation and avoiding further pressure on an already weak growth outlook. The SARB also lifted its inflation forecasts while lowering its growth projections, reinforcing that the external commodity shock is beginning to weigh more directly on the domestic economy.

Recent data supported the central bank’s more hawkish stance. Producer price inflation accelerated sharply in April, with the monthly producer price index (PPI) rising 3.0% and annual PPI reaching 4.8%, driven by fuel, fertilizer, petroleum, and chemical-related costs. At the same time, South Africa received a constructive medium-term signal from Moody’s late last Friday, which revised the sovereign outlook to positive from stable while keeping the rating at Ba2, citing improving fiscal performance, easing debt-service pressures, and progress on reforms. Taken together, the week presented a mixed macro picture: Near-term inflation and rate pressures worsened, but fiscal credibility and the ratings outlook improved, helping offset some of the negative implications of tighter monetary policy.