Blog week ending, 22nd May 2026
Markets:
- Local and global stocks fell early in the week amid concerns of escalating US-Iran tension and surging bond yields, before recovering late in the week on news of a potential diplomatic resolution.
- Global government bond yields were highly volatile, initially surging on fears that war-driven inflation may force central banks to move rates higher, before falling sharply on signs that a US-Iran deal might be near. 30-year US bond yields reached a 19-year high, whilst Japanese yields hit record levels and UK gilts yields climbed to a 28-year high.
- Elon Musk’s SpaceX is reportedly moving closer to an initial public offering (IPO) with a rumoured US$1.75 – 2 trillion valuation (crazy), raising up to US$75bn in what would be potentially the largest IPO in history.
- In local stock news, Brambles shares fell sharply following a shock downgrade to profit guidance, with the company halving its expected 2026 financial year profit range.
- Oil prices continued rising early in the week before easing back on news of a potential US-Iran deal. However, the International Energy Agency warned the oil market will remain materially undersupplied through October, even if the Iran conflict ends next month.
- Japanese Yen weakness continued, putting the currency on track for its largest weekly decline in two months.
Economy:
- The Australian labour market slowed with the unemployment rate increasing to 4.5% as employment fell by 18,600 in April, with declines in both full and part-time employment. This is the highest unemployment rate since November 2021.
- Minutes from the RBA’s May board meeting showed members wanted greater confidence that inflation will return to target over the next two years. Ongoing capacity constraints, financial conditions, and the inflationary impact of the Iran conflict were key considerations.
- Australian consumer sentiment rose 3.5% in May, rebounding from a 2.5-year low in April. The rebound was supported by the government’s temporary reduction of the fuel excise tax, though overall sentiment remains.
- US industrial production increased by 0.7% in April, the most in fourteen months and more than market expectations after decreasing in March. Manufacturing output rose 0.6%.
- US retail sales were up 0.5% in April pointing to some signs of consumer resilience.
- Euro area annual inflation rose to 3% in April, the highest level since September 2023 and significantly above the ECB’s 2% target. Energy prices saw the steepest increase.
- The number of payrolled employees in the UK declined by 100,000 in April, following a revised 28,000 fall in March. This was the third consecutive monthly decline and the steepest drop since May 2020.
- The UK annual inflation rate eased to 2.8% in April down from 3.3% in March, coming in below expectations of 3% and marking the lowest reading since March last year. The slowing was driven by an energy price cap by the UK’s energy regulator.
- Japan’s economy grew 0.5% in the March quarter, accelerating from a downwardly revised 0.2% increase in the previous quarter and topping market forecasts of 0.4%. It was the strongest expansion since the third quarter of 2024.
- Chinese retail sales rose just 0.2% in April compared to the same time last year, slowing sharply from a 1.7% increase in March and missing the expected 2% gain. This marked the slowest growth since December 2022. Broad weakness was seen in big-ticket purchases.
- China’s April industrial output climbed 4.1% on the same time last year, falling short of expectations for a 5.9% rise, whilst fixed asset investment contracted 1.6% in the first four months.
- China’s new home prices across seventy cities fell 3.5% in April versus the same time last year, following a 3.4% decline in the previous month, marking the 34th consecutive month of contraction and the steepest drop since May 2025.
- The Chinese central bank left its key lending rates unchanged at record lows in May, extending its pause to a 12th consecutive month, in line with market expectations.
Politics:
- Federal Treasurer Jim Chalmers defended his government’s proposed tax changes saying they increased fairness for investors while keeping capital gains tax rates competitive relative to overseas markets.
- Reports early in the week indicated the US and Israel were preparing to renew strikes on Iran, with options including intensified bombing, seizing Kharg Island, and potential ground operations to extract Iran’s nuclear material. At that stage, both sides remained far apart on a potential agreement.
- Later in the week, President Trump said he paused a planned US military strike on Iran following requests from leaders in Qatar, Saudi Arabia, and the UAE to allow negotiations to continue. Iran subsequently submitted a revised 14-point proposal via Pakistani mediators, with Trump stating talks are in the “final stages”.
- The White House announced that China has agreed to purchase at least US$17 billion of US agricultural products in 2026 and an initial order of 200 Boeing jets, alongside plans to establish new US-China trade and investment bodies following last week’s Trump-Xi summit. Chinese officials later downplayed aspects of these commitments.
- President Trump strengthened his control over the Republican Party, playing a key role in unseating both a Republican senator and congressman in closely watched primary elections.
Written by Christopher Lioutas
Chairman – Harbourside Investment Management
