Weekly Market review - 25 May 2026

Global equities performed strongly, supported by strong momentum in artificial intelligence stocks and easing geopolitical tensions in the Middle East. European equities performed best, while Chinese equities lagged on growth concerns.

US: CONSUMER SENTIMENT FELL TO RECORD LOW AS COST-OF-LIVING CONCERNS DEEPENED

U.S. equities pushed higher, with the Dow reaching a record and the S&P 500 extending its winning streak, supported by strong AI driven momentum following NVIDIA earnings and easing geopolitical concerns as investors leaned towards diplomacy over escalation in the Middle East. Market breadth improved, with small caps and value outperforming and equal weighted indices leading, suggesting a broader rally.

Purchasing Manager Index (PMI) readings indicated modest growth with stronger manufacturing but softer services, while inflation pressures intensified, with input and selling prices rising at the fastest pace since 2022. Consumer sentiment fell to a record low as cost-of-living concerns deepened and inflation expectations edged higher, reinforcing the challenge for the Fed. Geopolitical tensions eased, although Fed minutes reinforced that policymakers remain concerned about persistent inflation and are open to further tightening if needed.

JAPAN: INFLATION SOFTENED MORE THAN EXPECTED

Japanese equities rebounded strongly, supported by improved global risk sentiment and renewed optimism around U.S. Iran negotiations, alongside strength in AI related stocks following global semiconductor momentum. Economic data was more encouraging, with GDP growth surprising to the upside, driven by resilient consumption and exports, although there are concerns this may not yet reflect the full impact of higher energy prices. Inflation softened more than expected, easing pressure on the Bank of Japan to tighten policy in the near term and weighing on the yen, which weakened over the week. Despite this, government bond yields remained elevated, with policymakers still signalling a gradual path towards further rate increases.

CHINA: CONCERNS OVER THE SUSTAINABILITY OF ECONOMIC GROWTH DENTS INVESTOR SENTIMENT

Chinese equities declined modestly as weaker than expected April activity data raised fresh concerns about the sustainability of growth. Retail sales and industrial production both slowed, while fixed asset investment contracted, highlighting ongoing weakness in the property sector and subdued domestic demand. Markets also reacted to the lack of broader policy easing, with the central bank keeping lending rates unchanged, reinforcing a more targeted rather than stimulus heavy approach.

Geopolitically, China strengthened ties with Russia through a series of cooperation agreements, while simultaneously maintaining dialogue with the U.S., reflecting a balanced but complex external positioning for investors to monitor.

EUROPE: EASING TENSIONS IN THE MIDDLE EAST SEES EQUITIES WELL-SUPPORTED

European markets moved higher, driven largely by improved sentiment around potential de-escalation in the Middle East, with strong gains in Germany and France leading the region. Despite the positive market performance, the macro backdrop weakened, with the European Commission downgrading growth forecasts and raising inflation expectations, highlighting the impact of energy shocks and an uncertain trade environment.

Trade data showed a sharp deterioration, with exports, particularly to the U.S., falling significantly due to tariffs, dragging down the eurozone surplus. Inflation pressures at the producer level picked up in Germany, particularly in energy linked sectors, though some consumer goods saw price declines. Overall, the region faces a combination of weaker growth momentum and lingering inflation pressures.

UK: INFLATION SLOWS TO 2.8% IN APRIL, DOWN FROM 3.3% IN MARCH

UK equities rallied strongly, propelled higher by rising hopes of a de-escalation in the Middle East and falling gilt yields. Lower-than-expected inflation and slowing business activity saw gilt yields fall by the largest level since 2023. Some analysts now believe it is less likely that the Bank of England will raise rates quickly.

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.

WHAT'S HAPPENING THIS WEEK: 25 May to 29 May 2026

(Note: UK markets closed Monday for the Spring Bank Holiday, so it's a shortened week)

US Core PCE Inflation

On Friday, the latest US Personal Consumption Expenditures data is released.

Why it's important

PCE is the Federal Reserve's preferred inflation gauge. Last week's CPI print came in hot at 3.8%, with core also above expectations. That pushed the 10-year Treasury yield to around 4.6% and rattled equity markets. PCE will either confirm that inflation is reaccelerating, or take some of the sting out of last week's data.

Markets are now firmly pricing in the possibility that the Fed remains on hold for longer, with some economists raising the possibility of another rate rise rather than the cuts that were expected at the start of the year.

For UK investors, this matters indirectly but materially. US Treasury yields drag UK gilt yields with them through global capital flows. If PCE prints hot, expect another move higher in gilts and, by extension, swap rates that price UK fixed-rate mortgages.

US GDP Second Estimate

On Thursday, the second estimate of US first quarter GDP is released.

Why it's important

The first estimate came in at 2% annualised. The second estimate revises that figure based on more complete data, and can shift the narrative on whether the US economy is slowing as much as some indicators suggest.

This release matters because it sits alongside last week's record low consumer sentiment reading and the rising bond yields that are starting to test consumer affordability. If GDP is revised lower, it strengthens the case for the Fed to look through inflation pressures rather than tighten further. If revised higher, it makes the inflation problem look more entrenched.

Together with Friday's PCE data, this gives the clearest read in some time on whether the US is heading toward stagflation, a soft landing, or something more resilient.

*Source: Bloomberg. All performance measured in local currency.

Issued by Omnis Investments Limited. This update reflects Omnis’ view at the time of writing and is subject to change. The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Past performance should not be considered as a guide to future performance.