The week that was …
Economic round-up
UK inflation below expectations in April
UK inflation came in below expectations for April, with prices rising at 2.8% – down from 3.3% in March. Energy prices were lower due to the government’s energy bill support package and lower wholesale energy prices before the Iran conflict, the Office for National Statistics said. Food and alcoholic drinks inflation fell to 3%, down from 3.7% in the year to March. Read more from the BBC here
UK labour market dips
Britain’s unemployment rate rose slightly over the three months to March – up to 5%, from 4.9% over the three months to February. At the same time, average earnings growth fell to 3.4% – slower than the previous three months but still running ahead of inflation. Slowing wage growth should offer the Bank of England more breathing room on dealing with inflation. Read more from the BBC here
UK PMI flashes weakness
The UK’s purchasing manager index (PMI) data for May indicates the economy contracted at a quarterly rate of 0.2%, with the blame lying first and foremost with the war in the Middle East. The headline Composite PMI Output Index dropped from 52.6 in April to 48.5 – the first fall in output since April of last year. Read more from S&P Global here
UK retail sales slide
UK retail sales fell by the most in nearly a year over April as fuel sales plummeted. Retail sales volumes slid by 1.3% in April, compared with March – the biggest monthly decline since May 2025. The decline was led by weaker fuel volumes, which dropped by more than 10%. Read more from Reuters here
US manufacturing activity surprises
Against expectations, US manufacturing activity strengthened in May, scaling its highest level in four years. The S&P flash manufacturing PMI increased to 55.3 this month – the highest reading since May 2022 – up from 54.5 in April. Businesses boosted inventories to guard against potential shortages and rising prices related to the war with Iran. Read more from Reuters here
Japan’s economy on the up
Japan’s economy grew faster than expected in the first quarter of 2026, buoyed by stronger exports and consumption. Japan’s GDP increased by an annualised 2.1%, outstripping expectations of a 1.7% gain and a revised 0.8% rise in the previous October-December quarter. Read more in ‘In focus’ below and from Reuters here
Markets round-up
Gilts bounce back
UK government bonds enjoyed their best week in two and a half years, with the 10-year yield down 28 basis points over the week to 4.9%. Labour leadership frontrunner Andy Burnham pledged to stick to the UK’s fiscal rules and traders pulled back from bets the Bank of England would raise rates. Read more from the FT here
Another record quarter for Nvidia
Nvidia reported yet another record quarter with both sales and profits beating expectations – although investors were unimpressed and the US chip giant’s shares moved lower. First-quarter revenue was up 85% on the year to $81.6bn (£60.7bn), the group said, while net income more than tripled to $58.3bn. Read more in ‘In focus’ below and from the BBC here
IPOs threaten to disrupt UK market
The blockbuster listings anticipated from Anthropic, OpenAI and SpaceX could trigger an unprecedented wave of buying and selling as new ‘fast entry’ rules insert the stocks straight into Wall Street indices. The rules, implemented this month by Nasdaq, mean billions of dollars of passive money will automatically flow to the three companies shortly after they go public. Read more from the FT here
Clock ticking on Hormuz resolution
Markets can no longer dismiss the possibility that transit through Hormuz will remain constrained for many more weeks, according to analysis by Reuters. The oil market likely has about three months before tightening supplies begin to bite in earnest, this concluded, pushing inventories to critical lows, triggering sharper price gains and ultimately forcing demand destruction and broader economic pain. Read more from Reuters here
“In a reversal of traditional expectations, Japan’s growth stocks still trade at a discount to the wider market.
Selected equity and bond markets: 15/05/26 to 22/05/26
| Market | 15/05/26 (Close) |
22/05/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5480 | 5624 | +2.6% |
| S&P500 | 7409 | 7473 | +0.9% |
| MSCI World | 4742 | 4801 | +1.2% |
| CNBC Magnificent Seven | 451 | 447 | -0.1% |
| US 10-year treasury (yield) | 4.60% | 4.56% | |
| UK 10-year gilt (yield) | 5.18% | 4.9% |
Investment round-up
Fund managers shake off Iran worries
Fund managers carried out the largest single-month rotation into equities ever recorded in May, as earnings improved and worries on Iran eased. The May edition of the Bank of America Global Fund Manager Survey showed the Iran conflict’s impact on investor sentiment dropped significantly, with the number citing geopolitical conflict as the top tail risk more than halving.
Global dividends bounce
Global dividends started 2026 strongly – rising 8.2% to a first-quarter record of $419bn (£311bn), boosted by exchange rates and large one-off special dividends – according to the latest Dividend Watch, part of the Capital Group Global Equity Study. Underlying growth was 5.2%.
Evenlode promotes Dyer
Evenlode Investment has promoted Cristina Dyer to co-portfolio manager of its Global Equity fund. She joined the group’s global equity team as an analyst in 2020 and most recently served as deputy portfolio manager.
Asset managers embrace AI – Mercer
A majority of asset management groups – 55% of respondents – have integrated AI into at least one of their investment processes, according to analysis by Mercer, while almost all (91%) say they plan to increase AI use in the next 12 months. Three-quarters (73%) of firms use AI for operational efficiency in existing teams and 68% use AI as a partner in the investment process to provide insights and analysis. Only 5% of firms currently grant AI autonomous or semi-autonomous decision-making authority for investment recommendations or trades.
AJ Bell sees assets jump
AJ Bell has reported a 5% increase in its platform assets under administration over the six months to 31 March 2026, bringing it to £108.7bn. £4.2bn came from net inflows and £1.2bn from positive market movements. Over the same period, the group added 79,000 new customers.
Schroder UK Mid Cap reaches Saba deal
The Schroder UK Mid Cap investment trust has put forward a 100% tender offer, designed to facilitate the exit of activist shareholder Saba Capital Management. Saba has pledged to support the tender offer proposal, vote in favour of the resolution and tender its shares, while also committing to a three-year standstill agreement.
European FoF market draws inflows
The European fund-of-funds (FoF) market attracted €30.8bn (£26.6bn) of net inflows in 2025 after two years of outflows. The inflows bring the market to approximately €1.3trn – up 12% year-on-year – with allocation funds representing 75% of the market, according to Morningstar’s annual European FoF landscape report. The top 10 managers control 31% of assets.
… and the week that will be
Inflation crunch point looms for energy markets
Energy markets face a potential crunch point in June if the Strait of Hormuz blockage remains unresolved and fuel inventories keep falling. US PCE inflation data – potentially showing headline inflation moving above the Fed’s current policy rate – may galvanise president Donald Trump to make a deal. Read more from Reuters here
Salesforce results could offer clues on ‘AI losers’
Software giant Salesforce releases its earnings this week. Just as Nvidia’s latest results showed the strength of ‘AI winners’, Salesforce’s numbers may give an insight into potential losers – particularly with regard to investor concerns on whether software will see AI ‘eat its lunch’. Read more from Hargreaves Lansdown here
The week in numbers
US inflation: Consensus expectations have the Personal Consumption Expenditures price index – the US Federal Reserve’s preferred measure of inflation – holding steady in April at 0.3%.
US consumer confidence: Consensus expectations are that the US Conference Board index of consumer confidence will fall to 92 in May, down from 92.8 in April.
Germany inflation: Consensus forecasts for prices in Germany over May are for a 3.1% rise year-on-year, up from 2.9% in the previous period, and a 0.3% rise month-on-month, down from 0.6%.
In focus: Growth spurt
Investors may be showing greater interest in the apparent revival of the US technology sector, but Japan is easily maintaining its position as the top-performing developed market over 2026. The Nikkei index is up almost 30% over the year so far – 20 percentage points ahead of the S&P 500 – although, as valuations stretch, market leadership could well switch from value to growth stocks.
The average fund in the IA Japan sector is up 12.2% for the year to date – for context, the sector average for the Global and North American sectors is 6.7% and 6.9% respectively. While a lot of this strength came in the immediate aftermath of Sanae Takaichi’s election as prime minister, Japanese equities have also been strong in the recent rally.
There is a lot to like in Japan – for example, this week’s GDP data showed the economy growing at an annualised rate of 2.1% versus a forecast of 1.7%. Exports and consumption were both strong – and particularly noteworthy was a 45% surge in semiconductor exports to Asia. On the other hand, the country has a heavy reliance on Middle Eastern oil so rising fuel costs are likely to stoke inflation – denting consumer spending and impacting corporate margins.
Aside from a few select areas, it is difficult to make a case for Japan’s export sector from here. “AI demand will remain elevated in the near term, suggesting Japan’s tech-related goods exports to Asia excluding China will likely stay robust,” notes a report from Oxford Economics. “However, higher energy prices are likely to weigh on the global economy and gradually dampen demand for Japanese products, particularly non-AI capital goods.”
There is also pressure on policymakers to keep the yen high. US treasury secretary Scott Bessent, who has been back and forth to Japan in recent weeks, has expressed concern over the yen-dollar exchange rate. The Trump administration believes a weak yen unfairly favours Japanese exporters. Japan appears to be responding to the pressure, spending almost $64bn (£47bn) intervening in currency markets in the first two weeks of May alone.
This could change the winners and losers in the Japanese market. The gains in the Japanese market have come largely from the index heavyweights and value stocks. These companies have not only been beneficiaries of the weak yen, but also of corporate governance changes.
Largecap companies were quick to react – they had the pressure from shareholders immediately and they were financially literate enough to know what to do.”
“Since 2022, we have seen a huge change in the largecap universe,” says Chris Smith, manager on the Polar Capital Value fund. “These companies were quick to react – they had the pressure from shareholders immediately and they were financially literate enough to know what to do. Then the currency weakened further, which was supportive of the large exporters, and then we have had the boost for defence stocks too.”
In future, Smith believes the trade will be much more focused on the small and midcap space, adding: “We see that in the valuations. Large cap valuations have moved. In the smallcap space, the move has been nowhere near as large.” He thinks there will be much more M&A over the next few years. There has been relatively little consolidation within industries – for example, there are still more than 100 listed regional banks – and this should be more of a catalyst in the smallcap space than among larger stocks.
For its part, notes Smith, the largecap value arena tends to hold lower-quality businesses, with weaker cashflows and more leverage in areas such as autos, commodities and cyclicals. As for smallcaps, he continues: “We have found you can get a portfolio of value and quality.
“They are high-quality business, but financially less literate. They generated cashflows and just kept them on the balance sheet. Investors say, We are never going to get that cash back, so we won’t value it’.” He believes this is changing, however – and the Polar fund has a greater domestic bias as a result.
Baillie Gifford Japan trust manager Matthew Brett points out value’s outperformance in Japan since 2020 is in contrast to the pattern seen in the rest of the world. He attributes this to the weaker yen, which has favoured cyclical and exporter businesses, as well as a significant focus on governance improvements. “That has encouraged people to stick to certain types of businesses in Japan – industrials, shipping, steel and, to a lesser extent, car companies,” he adds.
“Looking forward, though, it is quite likely the best opportunities are no longer in that space, that this has gone far enough now, and there actually remains a lot of opportunities in the growth parts of the Japanese stockmarket.”
This is just a very rare situation. It is perfectly normal for growth companies to trade at some sort of premium – and yet, right now, they trade at less than the market.”
As an example, Brett points to how Japan leads the way on robotics. “Robots have struggled to operate in the real world and have generally been much better deployed in factories,” he notes. “That is very much changing, though, and it is an area we have been adding to. We already have stocks like Fanuc, the big industrial robot maker, and Yaskawa and Harmonic Drive Systems.”
Global managers also recognise the opportunity here, with Clare Pleydell-Bouverie, manager on the Liontrust Innovation fund, saying she has increasingly been looking beyond the US – and Japan has been an important hunting ground for the team.
In a reversal of traditional expectations, adds Brett, Japan’s growth stocks still trade at a discount to the wider market. “This is just a very rare situation,” he argues. “It is perfectly normal for those companies to trade at some sort of premium – and yet, right now, they trade at less than the market.”
There have been tentative signs of a shift in market leadership. The two styles are neck and neck for the year to date, but the MSCI Japan Value index has lagged the wider benchmark in the recent rally. Smallcaps have also outpaced the MSCI Japan index in recent weeks.
In broad terms, Japan has been a great place to invest in recent years but, from here, smallcaps and growth may lead the market. Not only are they cheaper, they should also benefit from the next wave of corporate governance reform. Furthermore, investors in these areas might expect to circumvent some of the cyclical and export names that could prove particularly vulnerable should the energy crisis endure.
Read more on this from AJ Bell here and from Trustnet here
In focus: Nvidia-watch
Nvidia has become a proxy for the entire AI trade – and its latest set of results suggests AI demand is robust. The US chip giant saw an 85% year-on-year rise in revenues, which was significantly ahead of analysts’ official expectations – although the slip in the share price suggests investors had been hoping for more.
Chief executive Jensen Huang may wonder what more he needed to do. In addition to stellar earnings numbers, the group announced $80bn (£59.3bn) in share buybacks and lifted its quarterly dividend to $0.25 per share – up from $0.01 – making it one of the biggest dividend payers in the US. And yet the share price was down 5.4% over the week.
Few doubt Nvidia is one of the main beneficiaries of the AI spending boom. In his latest newsletter to shareholders, former Baillie Gifford investment supremo James Anderson said the multi-billion-dollar spending frenzy from the large technology companies would flow disproportionately to Nvidia and its hardware peers such as ASML and TSMC.
That already appears to be baked into expectations, however, with investors more focused on a range of other factors. Long-term Nvidia holder and champion Mark Sheppard, manager on the London & Manchester investment trust, is one who has been selling down his holding, pointing to concerns about the chip-maker’s Vera Rubin platform.
In his latest newsletter to clients, Sheppard wrote that, while he still believes the stock will hit $500 within three years – it is currently at $217 – in the short term there may be delays to Vera Rubin and further losses in market share. “Nvidia had the opportunity with Vera Rubin to grasp the CPU market but, by over-specification to the Vera Rubin racks, they have dropped the ball through delays,” he explains. “It is a setback we believe will be overcome but it gives AMD and ARM some space to run.”
There is also the potential impact from the giant upcoming IPOs for Anthropic, OpenAI and SpaceX to consider. Under the Nasdaq’s new fast-track rules, these companies may form a significant share of the index when they come to market – which could in turn disrupt other index heavyweights, such as Nvidia, as passive investors need to sell to make way for the new names.
As things stand, Nvidia is the unrivalled poster-child for AI and is likely to see its revenues continue to grow. Whether it will remain a great investment, however, is open to question. Expectations are high and there may be disruption ahead.
