Blog week ending, 29th May 2026
Markets:
- Equity markets had a mixed week, supported early on by strong A.I. momentum, easing US inflation, and optimism around a potential US-Iran resolution. However, renewed Middle Eastern conflict later in the week saw markets give back some of those gains.
- Locally, bank, healthcare and energy stocks came under pressure, whilst resources and consumer staples proved more resilient.
- Oil prices eased and US government bond yields fell as hopes grew that the US-Iran negotiations were progressing positively.
- The International Energy Agency’s May oil report forecasts a contraction in global oil demand in 2026, to around 1.3 million barrels per day below pre-war expectation. Petrochemicals and aviation are expected to be the most affected sectors. The news comes as the US Strategic Petroleum Reserve levels continue to decline.
Economy:
- Australian inflation rose 0.4% in April, slowing sharply from March’s 1.1% increase and coming in below expectations. Goods inflation moderated, particularly in transport costs, though pressures remain elevated.
- Australian household spending dropped 1.1% in April, reversing a 1.6% rise in March and marking the first contraction since December. Spending declined across key categories including food, clothing, furnishings and household equipment, transport, and recreation.
- Australian capital expenditure increased by 6.5% in the March quarter, driven largely by strong investment in data centre equipment. Much of this investment is imported, which may limit its contribution to domestic growth.
- Australian construction activity rose 3.4% in the March quarter, following an upwardly revised 0.2% gain in the December quarter. The increase was led by engineering work, although the broader outlook for the construction sector remains mixed.
- The US economy expanded at an annualised 1.6% in the first quarter, up from 0.5% in the previous quarter but below the 2% estimate, reflecting weaker investment and consumer spending.
- The Federal Reserve’s preferred inflation measure showed an increase of 0.4% in April, below market expectations and slowing from a sharp 0.7% jump in March. Services inflation remained steady, while goods price growth moderated.
- US consumer sentiment plunged to a record low in May, revised down from an already weak reading and marking a third consecutive monthly decline. Cost of living remained the primary concern.
- A senior Federal Reserve official suggested removing the easing bias from policy guidance in the Fed’s meeting statement, noting inflation is not yet moving in the desired direction.
- Negotiated wages in the Euro Area rose 2.5% year-on-year the March quarter, slowing from a revised 2.9% in the previous quarter and well below the 5.6% peak of 2024. A sigh of relief for the ECB no doubt.
- UK retail sales declined 1.3% in April, the sharpest drop since May 2025. Despite this, consumer confidence rose modestly in May, even as political turmoil and cost of living pressures persist.
- Germany’s economy expanded 0.3% in the March quarter, matching estimates and accelerating from a 0.2% growth in the previous period, supported by stronger external demand. It marked the fastest quarterly growth since the first quarter of 2025.
- Japan’s core inflation remained above the Bank of Japan’s 2% target in April, reinforcing expectations of further interest rate increases.
- The Bank of Japan’s Deputy Governor reiterated the Bank’s commitment to further interest rate hikes, though noted that timing and pace would depend on how the conflict in the Middle East evolves.
- China’s industrial profits surged 24.7% in April, the fastest growth in more than two years, supported by rising A.I.-related demand and higher oil. State-owned enterprises also reported solid growth.
- The Reserve Bank of New Zealand left its official cash rate unchanged at 2.25% at its May meeting, maintaining a cautious stance amid heightened global uncertainty. The decision was closely contested and decided by the Governor’s casting vote, with markets now pricing in two rate hikes by year-end.
Politics:
- Whilst markets remain optimistic about a potential US-Iran agreement, US President Trump cautioned against rushing negotiations, stating the Strait of Hormuz would remain closed until an agreement is reached, certified, and signed.
- Reports suggest a phased framework for a US-Iran deal is evolving, beginning with a formal end to hostilities, followed by reopening the Strait of Hormuz, and then a 30–60-day window to negotiate a broader agreement. According to President Trump, negotiations are proceeding nicely.
- Despite ongoing negotiations, fighting continued, with the US and Iran trading blows described by both sides as “self-defence” whilst Israel intensified attacks in southern Lebanon.
- Russia warned of escalating risks in Ukraine, with its Foreign Minister urging US Secretary of State Marco Rubio to evacuate American citizens and diplomats from Kyiv, ahead of planned heavy strikes on the Ukrainian capital.
Written by Christopher Lioutas
Chairman – Harbourside Investment Management
