Global markets weekly update

Major U.S. stock indexes closed the week higher, with the Dow Jones Industrial Average advancing to an all-time high and the S&P 500 Index rising for the eighth consecutive week, its longest winning streak since 2023. Small-cap and value stocks outperformed large-cap and growth shares, while an equal-weighted version of the S&P 500 outpaced its market cap-weighted counterpart.

After a volatile start to the week, sentiment improved as enthusiasm around artificial intelligence (AI) stocks—supported in part by chipmaker NVIDIA’s stronger-than-expected earnings results—helped offset uncertainty surrounding the Middle East conflict. Additionally, while headlines around a possible deal between the U.S. and Iran remained fluid and sometimes conflicting, investors generally appeared to see negotiations as more likely than escalating military action.

In economic news, S&P Global released its May Flash Purchasing Managers’ Index (PMI) data on Thursday, which pointed to modest but uneven growth. The composite output index held steady at 51.7 during the month, while manufacturing activity strengthened and services activity softened (readings above 50 indicate expanding economic activity). The flash manufacturing PMI rose to 55.3, its highest level in four years, while the services activity index slipped to a two-month low of 50.9.

The inflation components of the survey appeared to be more concerning for investors, as input costs rose at the fastest pace since late 2022 while selling price inflation reached its highest level since August 2022, reinforcing concerns around persistent inflation pressures. The report also noted that employment fell overall, with job losses largely attributed to concerns around rising costs and worsening demand conditions.

The University of Michigan’s Index of Consumer Sentiment declined for the third consecutive month in May, dropping five points to a record low of 44.8, with cost-of-living pressures cited as a primary concern. Year-ahead inflation expectations rose to 4.8% from 4.7% in April, well above the 3.4% reading in February before the start of the Middle East conflict. Long-run inflation expectations also rose, climbing to 3.9% from 3.5% in April.

In housing market news, the National Association of Home Builders (NAHB) reported that its Housing Market Index rose three points to 37 in May, remaining below the neutral level of 50 for the 25th consecutive month, “as higher mortgage rates, rising gas prices, and economic uncertainty related to the war in Iran continue to dampen buyer demand,” according to NAHB Chairman Bill Owens.

Elsewhere, pending home sales increased 1.4% in April, down from a 1.7% rise in March, while housing starts declined 2.8% to a seasonally adjusted annual rate of 1.465 million. Meanwhile, data from Freddie Mac showed that the average interest rate for a 30-year mortgage rose to 6.51% during the week, up from 6.36% in the prior week and the highest level since August.

U.S. 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 U.S. was in the “final stages” of talks with Iran. (Bond prices and yields move in opposite directions.) After ending the prior week at about 4.6%, the yield on the benchmark 10-year U.S. Treasury note hit a midweek high of 4.69% before retreating to around 4.56% as of Friday afternoon.

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.

The pan-European STOXX Europe 600 Index ended the week up 3.00% in local currency terms. Most European markets moved higher, propelled by rising hopes of a de-escalation in the Middle East. Among major stock indexes, Germany’s DAX closed 3.92% higher, France’s CAC 40 Index rose 2.05%, and Italy’s FTSE MIB gained 0.80%. The UK’s FTSE 100 Index climbed 2.66%.

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 registered in 2025 and lower than 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 U.S. were 38.8% lower on the year, reflecting the imposition of U.S. 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.

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 lower than the 3% that had been expected. The ONS noted that an energy price cap introduced by the country’s regulator had helped to keep a lid on inflation.

Japan's equity markets rebounded strongly during the week, with the Nikkei 225 Index rising 3.14% and the broader TOPIX Index gaining 0.74%. Sentiment was buoyed by ongoing hopes for U.S.-Iran peace negotiations, with reports indicating some progress despite unresolved sticking points on uranium enrichment and control over the Strait of Hormuz. Oil prices stabilized, which helped support risk appetite. Technology and AI-related shares led the advance, as strong earnings within some semiconductor companies revived global enthusiasm for the AI investment theme and lifted Japan's chip-linked equities broadly.

The yen weakened to approximately JPY 159.10 against the U.S. dollar from the JPY 158 range 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, 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 2.76% from 2.72% 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, signaling 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 annualized 2.1% rate, 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.

China equities retreated over the week after disappointing April activity data renewed growth concerns. The CSI 300 Index declined 0.30%, the Shanghai Composite Index fell 0.54%, and the Hang Seng Index dropped 1.37% in local currency terms, according to FactSet. 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.

On the economic front, China’s April activity data missed consensus expectations and reinforced signs that first-quarter momentum is softening. Industrial output rose 4.1% year over year, slower than the 5.7% growth in March, while retail sales increased just 0.2% year over year, 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 12th 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 May 19 to 20, shortly after Chinese President Xi Jinping hosted U.S. President Donald Trump for bilateral talks earlier in the month aimed at stabilizing U.S.-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 stabilize 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.

Bank Indonesia unexpectedly raised its policy rate by 50 basis points to 5.25%, its first rate increase since 2024 and the most aggressive move since 2022. The move was framed by policymakers as a preemptive step to stabilize 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 U.S. 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.

Türkiye’s 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 U.S. dollar due to continued official management, reports indicated that the central bank sold billions of dollars in foreign exchange reserves to defend the currency amid capital outflow pressure. The move added to broader concerns around reserve adequacy and policy sustainability at a time when inflation expectations and geopolitical risks remain elevated.