Global equities hit new all-time highs, bonds rallied, and credit tightened, all on the hopes of a US–Iran ceasefire that remains, as yet, unsigned.

Artificial intelligence (AI) drove equities, geopolitics drove rates, and Europe outperformed the US in fixed income as growth fears and a cautious European Central Bank (ECB) diverged from a hawkish Federal Reserve (Fed). This week's non-farm payrolls (NFP) and consumer price index (CPI) data will determine whether the momentum holds.

Macroeconomics

In the past week, the second estimate of US Q1 2026 GDP was revised down to 1.6% q/q, from 2.0% in the first estimate, reflecting lower consumption and a larger decline in inventories. Consumption growth slowed, driven by reduced purchases of both goods and services. Investment remained very strong, with equipment up 17.2% q/q and R&D up 11.6% q/q. This solid investment trend was corroborated by rising durable goods orders (+7.9% month-on-month (m/m) in April) and rebounding business surveys, including the Richmond Fed Index and the Chicago Purchasing Managers’ Index (PMI).

Consumer confidence (Conference Board) remained low, although expectations have stopped declining. April core personal consumption expenditure (PCE) inflation remained moderate at +0.2% m/m, with the annual rate coming in in line with expectations at 3.3% year-on-year (y/y), up from 3.0% the previous month.

In the eurozone, industrial confidence remained depressed in May, though sentiment on orders was less negative. Consumer confidence also improved marginally, although consumption data from France and Spain showed signs of stress, with petrol consumption declining.

Flash inflation estimates for May pointed to a moderate monthly rise but a still-rising annual trend: France +2.8% y/y, Spain +3.6% y/y, and Italy +3.3% y/y, while German inflation held steady at 2.7%. Q1 2026 gross domestic product (GDP) growth was revised down for France (-0.1% q/q) but up for Italy (+0.3% q/q), supported by consumption and capital expenditure.

The focus this week will be on the US, with final PMI and ISM activity indices being published alongside labour market data. The May ISM Manufacturing Index is expected to remain in expansionary territory, whilst a more modest rise is anticipated in ISM Services. April labour market data should remain constructive, with job creation expected to come in at 89,000 and the unemployment rate to hold steady at 4.3%.

In the eurozone, unemployment is expected to remain at 6.2% for April, although upside risks persist given signs of weakening activity. The eurozone flash inflation estimate for May is expected to show a moderate contribution from energy to the monthly changes, with headline inflation projected to reach 3.2% and core inflation to rise to 2.4%.

Equities

Global equities registered another week of gains (MSCI ACWI total return +1.7%), with US markets notching up their ninth consecutive week of positive returns (S&P 500 +1.4%) and closing at new all-time highs. Investor sentiment was supported by hopes of a US–Iran peace agreement, falling oil prices, and continued momentum in AI-related companies.

The last of these lifted the global technology sector (+5.4%, making it the best-performing sector), with gains amplified in markets with elevated technology exposures, notably emerging markets (MSCI EM +4.0%; 44.4% tech weighting), while Europe lagged behind (STOXX Europe 600 +0.3%; 8.6%). Furthermore, last week's gains propelled the global technology sector to become the best-performing sector year-to-date at +31.6%, dethroning the energy sector, which fell -4.5% last week (the worst-performing sector), bringing its year-to-date gain to +24.5%.

Although markets have shown premature optimism about a potential reopening of the Strait of Hormuz, the latest peace-deal attempt comes as the conflict enters its fourth month, the US summer driving season begins, and key domestic events approach (the 250th anniversary of the Declaration of Independence and the midterm elections in the US). With a resolution still uncertain, investors should remain focused on fundamentals: a resilient global economic backdrop and accelerating corporate earnings underpinned by the AI-driven capital expenditure cycle. In the week ahead, geopolitical developments, US labour market data, and corporate earnings will be in focus.

Equities climbed for a ninth week in a row; AI momentum and ceasefire hopes drove markets to new all-time highs.

Fixed income

Government yields in developed markets retraced the prior week's modest sell-off and moved lower across the board, with 2-year and 10-year rates declining by around10–12 bps in the US, Germany, and the UK. The catalyst was a tentative US–Iran ceasefire framework; negotiators reached agreement on a 60-day memorandum of understanding (MoU) to extend the ceasefire and begin nuclear negotiations, though Trump has not yet given final approval and Iran has not confirmed its agreement; this drove oil sharply lower and eased near-term stagflationary concerns.

In credit, investment-grade (IG) spreads remained flat at tight levels, whilst high yield (HY) and emerging markets (EM) ground modestly tighter, supporting returns across the complex. EM was the standout at +1.2% on the week; the remaining asset classes delivered between +0.4% and +0.6%.

For the full month of May, Treasuries were flat, IG +0.4%, HY +0.6%, additional tier 1 (AT1s) +0.2%, and EM +1.0%. Euro returns were stronger: government bonds +0.9%, IG +0.8%, HY +1.0%, and AT1s +1.2%. The outperformance reflects the fact that European yields fell during the month: Bunds were down -10 bps, with moves more pronounced in France and the periphery, whereas US rates moved in the opposite direction, with 2-year and 10-year Treasuries up +14 bps and +6 bps, respectively. Both regions faced the same shock, but each viewed it through different lenses: in the US, the Iran conflict amplified inflation concerns and forced a hawkish Fed repricing; in Europe, growth fears, safe-haven demand, and a more cautious ECB dominated.

For this week, the US–Iran MoU remains the dominant wildcard. Trump's demands on Friday for Hormuz, the nuclear programme, and frozen assets did not land well in Tehran, and the framework remains unsigned. Any signing, or breakdown, would move rates, oil, and credit simultaneously. Given the range of outcomes, taking a strong directional view on rates is difficult, which is why we are keeping duration neutral across portfolios.

Yields fell across the board; ceasefire hopes drove rates lower and credit tighter.

Forex & Commodities

Last week, the USD traded in a tight range against most G10 majors, with the US Dollar Index hovering around 99.00. The underlying macro backdrop has become increasingly favourable for the greenback. Rate spreads against the key major currencies have moved in the USD's favour in recent weeks, and economic momentum has deteriorated for several of the other majors, notably the euro. The main event risk for the USD over the coming week will be the publication of US labour market data (ADP and NFP); a stable print should support current valuations, but the bar is rising for catalysts towards material USD weakness in the short term.

The main event for the EUR will be the publication of eurozone May CPI data, which are expected to print at 3.3% y/y (headline) and 2.4% y/y (core). Should the data disappoint on the core measure, the market could move to price out marginal ECB rate hikes, creating further downside risks for spreads and for the EUR/USD.

The key event risk for CHF exchange rates over the coming week is the publication of May CPI data (4 June). The data are expected to print at 0.8% y/y (headline) and 0.3% y/y (core). The rise from the April reading reflects higher energy prices. The data are unlikely to have a material impact on market pricing for the Swiss National Bank (SNB), offering no reason for a dramatic CHF move. A modest EUR/CHF downside is anticipated over the coming months, to levels of 0.89 by year-end.

Last week, the USD/JPY rose to just under 160.00; wiping out all of the JPY's gains since the Ministry of Finance's (MoF) latest FX intervention. The MoF revealed that it spent around USD 75 billion on the intervention, the largest in its history. Investors should anticipate further verbal interventions in the near term; a short-term rise to above 160 cannot be ruled out, as the market tests Tokyo's willingness to defend the yen.

The USD holds firm; labour market data and eurozone CPI are the week's key watchpoints.

The opinions expressed herein are correct as at 1 June 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.