The week that was …
Economic round-up
US Q1 growth revised down
The Bureau of Economic Analysis revised US economic growth lower for the first three months of 2026. Momentum also looks set to slow in the second quarter as the war with Iran creates inflationary pressures and squeezes household finances. Gross domestic product increased at a 1.6% annualised rate over the quarter – below initial consensus estimates of 2.0%. Read more from Reuters here
Iran war continues to hit US prices
The PCE Price index, the Federal Reserve’s preferred measure of US inflation, showed an annual inflation rate of 3.8% in April, as the Iran war continues to weigh on prices. Excluding food and energy, core prices rose 0.2% for the month and 3.3% for the year, against consensus estimates of 0.3% and 3.3%. Read more from CNBC here
AI productivity doubts aired
St Louis Federal Reserve president Alberto Musalem has cast doubt on the expectation artificial intelligence could help reduce inflation by boosting productivity, arguing it would be a mistake for the US central bank to count on that possibility by easing monetary policy. Read more in ‘In focus’ below and from Reuters here
US consumer confidence drops
US consumer confidence slipped in May as worries about inflation linked to the war in Iran intensified and households’ views on the labour market grew more pessimistic. The Conference Board’s sentiment index dropped to 93.1 – compared with 93.8 in April – although this was higher than a Reuters consensus estimate of 92. Read more from Reuters here
Germany’s inflation slows
Germany’s inflation rate slowed to 2.7% in May – down from 2.9% last month and against consensus market expectations of 3.1%. The slowdown was attributed to lower energy prices, with analysts suggesting there were few signs inflationary pressures were spreading across the broader economy. Read more from Reuters here
Markets round-up
US stocks post another week of gains …
Led by AI stocks, US equities notched up their ninth straight week of gains. There were also some indications the US and Iran could be nearing a deal to extend a fragile ceasefire. The S&P 500 rose 1.4% last week, pushing the blue-chip index to its longest weekly winning streak since December 2023. The tech-focused Nasdaq Composite is up almost 25% since the end of March. Read more from the FT here
… but Footsie edges down
The FTSE 100 edged lower on Friday, leaving it down on the week, as US president Donald Trump said he was still making a final decision on whether to strike a peace deal with Iran. The leading UK index closed down 0.2%, at 10,409.28, although it had proved a better week for small and midcap stocks. Read more from Morningstar here
US beef shortages raise prices
US farmers are experiencing a severe cattle shortage, reporting 20% to 30% fewer calves than last year. Beef prices have soared to record levels in the US as a result and are now up 75% since 2020, according to the St Louis Federal Reserve. Read more from the FT here
Asia-Pacific markets push higher
South Korea’s Kospi and Japan’s Topix indices hit new all-time highs, as investors focused on gains in technology shares. The Kospi jumped more than 3% to 8,476.15 last week though the smallcap-focused Kosdaq was down 2.68% to 1,074.8. Meanwhile, the Nikkei 225 was up 2.53%. Read more from CNBC here
EasyJet attracts takeover interest
EasyJet has attracted takeover interest from Castlelake. The private credit firm, which is majority owned by Brookfield Asset Management, said it was in the “early stages of considering a possible offer” for the budget airline but had not made any approach to its board. Read more from the FT here
“Demand for the SpaceX IPO is unlikely to be the issue. The real test will be valuation, governance and how much capital intensity public investors are willing to absorb.
Selected equity and bond markets: 22/05/26 to 29/05/26
| Market | 22/05/26 (Close) |
29/05/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5624 | 5604 | -0.4% |
| S&P500 | 7473 | 7580 | +1.4% |
| MSCI World | 4801 | 4865 | +1.3% |
| CNBC Magnificent Seven | 447 | 455 | +1.8% |
| US 10-year treasury (yield) | 4.56% | 4.44% | |
| UK 10-year gilt (yield) | 4.9% | 4.8% |
Investment round-up
Train targets ‘once-in-a-decade’ buying opportunity
Finsbury Growth & Income manager Nick Train has said he will use leverage to take advantage of a “once-in-a-decade” buying opportunity in UK equities. He plans to increase exposure to data and software-focused companies that have been hit by an AI-led sell-off, including Experian, London Stock Exchange Group, Relx and Sage.
Aberdeen appoints Bots as global equities head
Aberdeen Investments has announced Herman Bots will succeed Devan Kaloo as the group’s global head of equities. Bots joins from pension investment firm APG. Kaloo will remain at the firm, managing emerging market equities.
Vanguard appoints Marchioni as Europe multi-asset head
Vanguard has appointed Ursula Marchioni as head of multi-asset & adviser solutions Europe, with the aim of strengthening the US asset manager’s offering of ETF model portfolios for advisers and institutional clients across the region.
Pridham report highlights fund sales dip
Net retail fund sales dipped into negative territory in the first quarter of the year, as the conflict in the Middle East prompted selling, according to the latest Pridham Report. The net figure of -£5bn is in line with the last quarter of 2025.
AllianceBernstein launches active ETFs
AllianceBernstein has listed two active equity ETFs in Europe – the AB Global Research Advanced and AB Global Disruptors Ucits ETFs. Both actively managed, they will use fundamental and quantitative research to build a diversified portfolio of equity securities.
Franklin Templeton active ETF focuses on US income
Franklin Templeton is pushing ahead with its active ETF expansion in Europe, launching its first income-focused strategy targeting the US market. The Franklin US Income Equity Focus Ucits ETF will list on Xetra, Borsa Italiana and the London Stock Exchange. The product has a total expense ratio of 0.35%.
CQS follows original managers
The board of CQS Natural Resources Growth & Income has announced it will follow portfolio managers Keith Watson and Robert Crayfourd to Tufton Investment Management, appointing the firm as its new fund manager in place of Manulife after conducting a beauty parade.
… and the week that will be
Peace talks progress
Currency and commodity markets are awaiting details on the weekend’s peace talks, as US and Iranian negotiators try to thrash out a deal to extend the ceasefire and see shipping traffic start flowing through the Strait of Hormuz. While both sides have made some encouraging statements, a long-term resolution to the conflict still appears a remote possibility. Read more from Reuters here
US jobs market
The US’s May jobs numbers are due to land on Friday. Employers hired vastly more than expected in April and May but economists are dividend on the outlook. Some believe the US labour market is rallying after a sluggish 2025 but others argue the growth reflects surging demand for healthcare workers, which can be attributed to an aging population, rather than economic expansion. There is also uncertainty as to the degree recent data has captured how war with Iran is altering the economy. Read more from Investopedia here
The week in numbers
UK construction: Consensus expectations have the purchasing managers index (PMI) for the UK construction sector rising to 40.3 in May, from 39.7 the previous month.
Eurozone inflation: Consensus forecasts have the flash May reading of Eurozone inflation showing prices up 3.4% year-on year, versus 3% previously, and up 0.2% month-on-month, versus 1% in April. Core inflation is meanwhile forecast to be 2.3% year-on-year, versus 2.2% a month earlier.
US manufacturing: Consensus expectations have the May reading of the US ISM manufacturing PMI edging up to 53.0, versus 52.7 in April.
US employment: Consensus forecasts for US jobs data in May have non-farm payrolls falling to 102,000 from 115,000 in April; the unemployment rate rising to 4.4% from 4.3%; and average hourly earnings holding at 0.2% month-on-month but falling to 3.5% year-on-year, down from 3.6%.
In focus: Judging the SpaceX factor
By issuing the public prospectus for its IPO, SpaceX has initiated the countdown – sorry – on a bumper summer of share launches. Big names such as Anthropic, Databricks and OpenAI could soon follow suit. At the same time, listing authorities and index providers are going out of their way to ensure the IPOs will prove a success, tweaking the rules to ensure the best possible chance of a speedy ascension into the main indices.
The SpaceX prospectus shows the company trying to raise between $50bn and $75bn – implying a total valuation of some $1.75tn (£1.3tn). If successful, that would be the largest IPO in history so what will investors be receiving for their money? There will be around $4bn of revenues from the group’s space business – although that trades at a small loss – but the real prize is seen as Starlink, the satellite communications operation. This is where the largest share of the revenues resides for the time being – $11.4bn in 2025.
The third element of SpaceX is its AI arm, which combines generative AI chatbot Grok and Colossus, the datacentre business. This part of the company is hugely capital-intensive and significantly loss-making. Grok is up against market leaders Anthropic, Google and OpenAI and has been the subject of significant controversy. The datacentre business has been more successful, however, and is now used by other AI providers. The prospectus also flags plans to build datacentres in space.
Investors will also be getting a lot of Elon Musk’s ambition – according to the prospectus, he aims to make life “multi-planetary”, extend “the light of consciousness to the stars” and harness the sun “to power a truth-seeking artificial intelligence”.
The whole SpaceX structure is dependent on – and highly favourable to – its mercurial chief executive. He can only be removed as chair or chief executive by a majority vote of the class B shareholders – and he personally controls 93.6% of those shares.
As Stephen Dover, chief market strategist at the Franklin Templeton Institute, observes, the IPO forces investors to value an unusual range of assets. In revenue terms, according to the institute’s figures, SpaceX is around 250th in the US market – equivalent to General Mills, which makes the Lucky Charms cereals – so investors are firmly looking at the potential growth. “Demand for this IPO is unlikely to be the issue,” adds Dover. “The real test will be valuation, governance and how much capital intensity public investors are willing to absorb.”
SpaceX is likely to be the first beneficiary of moves by the major index providers to speed up the time it takes for newly large public firms to appear in their offerings.”
So how much do investors really need to care about SpaceX and any subsequent ‘mega-IPOs’? Arguably the major issue here is the potential disruption to relevant market indices.
SpaceX is likely to be the first beneficiary of moves by the major index providers to speed up the time it takes for newly large public firms to appear in their offerings. Many passive exchange-traded funds will buy the new business soon after listing – and, if SpaceX does lists at $1.75tn, that would put it comfortably in the top 10 of the S&P500 and other global indices such as the MSCI World.
Defaqto data shows passive MPS portfolios already hold 8 or 9 percentage points more North American exposure than active ones. Equally, many of the largest funds held in MPS portfolios could be exposed.
As an example, the most popular holding – Vanguard LifeStrategy 100% Equity, which features in almost 20% of MPS portfolios, both active and passive – has its two highest weights and over half of its exposure in the FTSE Developed World ex-UK Equity Index fund and US Equity Index fund.
Other hugely popular funds with potential exposure include Fidelity Index World, HSBC American Index, L&G Global 100 Index and L&G Global Technology Index. None of these have yet declared their hand on the inclusion of SpaceX but they could follow Nasdaq and others in including it early.
“The more important story is the scale of the private companies preparing to enter public markets,” argues Dover. “SpaceX could become the first major test, with Anduril, Anthropic, Databricks, OpenAI and Stripe potentially then creating a wave of new market capitalisation large enough to reprice growth equities more broadly.”
Success is not guaranteed for any of these companies and weaker deals could struggle quickly in the aftermarket. Index investors really do need to take this into consideration.”
This, Dover believes, could prove disruptive for the major indices. “Supply is the underappreciated risk,” he explains. “If several mega-cap IPOs come in the same window of time, they will compete for capital not only with each other, but also with existing publicly-traded growth stocks. That could create rotation pressure across software, semiconductors, fintech, defence tech and AI beneficiaries.”
Success is not guaranteed for any of these companies, Dover notes, and weaker deals could struggle quickly in the aftermarket. Index investors really do need to take this into consideration.
For Claire Titmarsh, equity analyst at Rathbones, properly judging SpaceX will inevitably take time. “Many of the opportunities it is pursuing – developing orbital AI compute at scale, manufacturing AI chips at scale, establishing a lunar economy, developing human augmentation systems and transporting humans and cargo to the Moon and Mars involve significant technical complexity and are very long-term endeavours” she says. “It will therefore be some time before we can judge whether any will be successful.”
That in turn means a lot of the SpaceX valuation will come down to whether investors trust Elon Musk to deliver on his promises/aspirations and whether the AI trend pans out as expected. As Dover points out, for all these AI-related IPOs, there are wider questions over compute costs, margin structure, capital needs and the timing of free cashflow.
It will also be a major test for private-equity valuations. Baillie Gifford’s Scottish Mortgage currently holds SpaceX at a valuation of $1.25tn, for example, with the company explaining: “Our current carrying value for SpaceX sits below the $1.75tn figure reported in the press – this is deliberate. The Baillie Gifford Valuations Team, along with our independent third-party provider S&P Global, values private holdings based on verifiable transactions, not press speculation.”
There is a great deal riding on the success of the SpaceX IPO and any others that follow in its wake. At the very least, it could make the index more volatile, introducing a very large company that is long on ambition but – so far – short on profitability.
Read more on this from Daily Maverick here and from the FT here
In focus: Diverging markets
The dilemma facing the US Federal Reserve became more evident last week, following the release of the latest GDP figures for the country as well as the new Personal Consumption Expenditures Price Index data. Inflation in the US is running hot – at 3.8%. And, although growth is weakening – 1.6% for the first quarter – it is difficult to argue the country requires rate cuts. Indeed, rate rises remain a possibility.
Incoming Fed chair Kevin Warsh has argued the Monetary Policy Committee could start to anticipate the potentially deflationary impact of AI yet many experts consider this a risky option. Only last week, for example, St Louis Federal Reserve president Alberto Musalem said it would be a mistake for the US central bank to count on AI in easing monetary policy.
“If we don’t see disinflation in the next one to two quarters, that would concern me,” he elaborated. “Right now my view is that the risks have tilted more towards the inflation side than the labour market side.”
Meanwhile, the picture in Europe and the UK is different. Anthony Willis, senior economist, multi-asset solutions team at Columbia Threadneedle, points out that flash purchasing managers index (PMI) data is indicating a notable slowdown in activity in the UK and Europe, “suggesting the prolonged conflict in the Middle East was impacting not only inflation but also the outlook for economic growth”. In contrast, he continues, the US flash PMI data was largely unchanged and remained in ‘expansion’ territory.
Both UK and German inflation data have come in below expectations – and, in the former instance, this has combined with weaker employment data. The latest PMI data suggests expansion of just 0.1% in the second quarter, which takes pressure off the Bank of England to ease rates.
“The outlook for the eurozone appeared equally gloomy with the overall PMI data moving into ‘contraction’ territory thanks to a slump in the services sector,” says Willis. “Given eurozone growth in Q1 was only 0.1%, the downside risks are clear. But will the European Central Bank prioritise inflation or growth concerns? Markets are still pricing a 90% probability the central bank will hike rates by 25 basis points in early June.”
That said, sustained rate rises now look more likely in the US, than in the UK or Europe. And, while the inflation issue is a universal one, stronger growth in the US looks more likely to create contagion through the global economy. AI may still dampen inflation – but it is by no means guaranteed.
