The week that was …
Economic round-up
US prices rise at fastest rate for three years
April saw US prices rise at their fastest rate since May 2023. Rising costs for petrol and groceries pushed the country’s Consumer Prices Index (CPI) up by 3.8% year-on-year, ahead of consensus expectations. According to the Bureau of Labour Statistics, almost half of the rise was driven by surging energy costs, but housing and food costs also contributed. Read more in ‘In focus’ below and from the BBC here
Positive UK growth surprise in Q1
The UK economy has defied expectations of a slowdown by growing 0.6% in the first quarter of the year. The economy also grew by 0.3% in March whereas economists had expected a 0.2% contraction after a strong showing in February. Growth was led by broad-based increases across the services sector. Read more from the Independent here
China and US agree ‘preliminary’ agriculture deal
China and the US have agreed to expand agricultural trade through tariff reductions and also to tackle non-tariff barriers. The agreements are “preliminary” and will be “finalised as soon as possible,” the Chinese commerce ministry said. Read more from CNBC here
Inflationary pressures clear in PPI data …
Rising inflationary pressures were also evident in April’s producer price data, with the Labour Department index showing its biggest increase in four years. The Producer Price Index (PPI) for final demand surged 1.4% last month – the largest rise since March 2022 – after an upwardly revised 0.7% advance in March. Economists polled by Reuters had forecast the PPI gaining 0.5%. Read more from Reuters here
… but US retail sales hold firm
US retail and food services sales rose in April in spite of rising inflationary pressures. Sales grew 0.5% month-on-month – in line with the consensus forecast. Indeed, sales grew even when gas sales were excluded, suggesting inflationary pressures have yet to dent spending among higher-income consumers. Read more from S&P here
China inflation edges higher in April
China’s CPI inflation rose to 1.2% year-on-year in April, up from 1.0% in March. Consensus among economists had been for a slight drop on the month. Higher energy prices contributed to the highest inflation reading in a subcategory, with a 17.4% year-on-year surge in energy for the transportation sector. Read more from ING here
Markets round-up
UK gilts reach new high
UK government borrowing costs reached an 18-year high – while the pound has fallen – in response to the Labour leadership battle. The market is concerned that a more left-leaning government would increase borrowing. The 10-year bond yield rose above 5.17% at one point on Friday, while the pound fell 0.3% against the dollar. Read more from the BBC here
SpaceX sets floatation date
Elon Musk’s rocket and satellite manufacturer SpaceX is aiming to list its shares on Nasdaq as early as 12 June. Set to trade under the ticker ‘SPCX’, the group has said it will make its prospectus public on Wednesday 20 May. Read more from Reuters here
US stocks drop on inflation data
US stocks fell on Friday, as the Treasury yield rose, inflation data emerged and the US/Chinese summit ended with no major policy breakthroughs. The S&P 500 fell 1.24% to end at 7,408.50, while the Nasdaq Composite slipped 1.54% to 26,225.14. Investors took profits in tech after sharp gains. Read more from CNBC here
Tate & Lyle in takeover talks
Sweetener and ingredients firm Tate & Lyle has announced talks over a possible £2.7bn takeover by US rival Ingredion Incorporated. The Illinois-based Ingredion is thought to be contemplating an offer of 615p per share in cash and follows a number of earlier proposals. Read more from the Independent here
Burberry bounces back
Luxury goods group Burberry has swung back to profit after the group’s bet on Gen Z shoppers paid off. The group, however, flagged worries over a possible Iran war impact on consumer spending. Read more from the Independent here
Oil prices edge higher
Oil prices rose on Friday as US president Donald Trump said he would turn his attention back to the conflict with Iran after leaving a summit with China counterpart Xi Jinping. International benchmark Brent crude futures for July gained more than 3% to close at $109.26 (£81.73) a barrel. Read more from CNBC here
“The latest inflation data leaves the US consumer looking very exposed and with little in the way of wiggle room.
Selected equity and bond markets: 08/05/26 to 15/05/26
| Market | 08/05/26 (Close) |
15/05/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5504 | 5480 | -0.5% |
| S&P500 | 7399 | 7409 | +0.1% |
| MSCI World | 4757 | 4742 | -0.3% |
| CNBC Magnificent Seven | 449 | 451 | +0.5% |
| US 10-year treasury (yield) | 4.36% | 4.60% | |
| UK 10-year gilt (yield) | 4.91% | 5.18% |
Investment round-up
Global dividends set new records
Global dividend payouts hit a record $421bn (£35bn) in the first quarter of 2026, according to the Vanguard Global Payout Pulse. Driven by accelerating payouts from US companies, this was a rise of 6.7% on the $394bn distributed in the first quarter of 2025.
Pimco to manage Quilter bond fund
Pimco has been appointed to manage the Quilter Investors Global Government Bond fund. Quilter is moving part of its government bond exposure from passive to active out of a desire to be more flexible. Andrew Balls, chief investment officer for global fixed income at Pimco, will lead the management team on the fund.
DIY investment accounts hit new high in Q1
The number of DIY investment accounts in the UK reached 14.1 million in the first quarter of 2026 – a record high – according to Boring Money. The firm’s research showed total assets under administration fell 0.7% to £571.9bn, however, due to “volatility from the Iran conflict and global uncertainty”.
State Street co-brands with Ninety One on active ETFs
State Street Investment Management and Ninety One are coming together to introduce a suite of active co-branded ETFs. The initial products will focus on actively managed global equities and emerging markets.
Fidelity launches two global equity funds
Fidelity International has launched two global equity funds, based on existing US-run strategies. The Global Smaller Companies strategy aims to achieve capital growth over the long term by focusing on opportunities across the global small-cap universe, while Global Founders aims to achieve capital growth over the long term by investing in companies where a founder, their family or foundation remain closely involved in leadership or governance.
Federated Hermes appoints Gross as credit head
London-based asset manager Federated Hermes has appointed Carlos Gross as head of European credit opportunities in the private credit team. He will report into Patrick Marshall, chief investment officer and head of private credit.
Franklin Templeton launches four S&P500 ETFs
Franklin Templeton has launched four ETFs indexed to the S&P 500, with communication services, consumer discretionary, financials and information technology exposures. The ETFs will trade on the Deutsche Börse Xetra, Borsa Italiana and London Stock Exchange.
… and the week that will be
Nvidia back in the spotlight
Nvidia is set to release its results this week, giving investors further insights into the strength of the AI trend. The group’s results should show whether the AI-related capital expenditure cycle still has momentum – as well as the extent to which it can translate into durable earnings growth across the wider market. Expectations are – unsurprisingly – already high. Read more from Reuters here
Results due from string of leading UK stocks
It is also a big week for the UK market, with many of its bellwether companies reporting earnings. The week kicks off with numbers from Big Yellow, followed by Currys and Cranswick on Tuesday. British Land, M&S, AJ Bell and Easyjet will also provide clues as to the health of the British consumer and the UK corporate sector. Read more from Hargreaves Lansdown here
The week in numbers
UK inflation: The latest UK inflation data is due out on Wednesday. Prices rose 3.3% year-on-year in March and 0.7% month-on-month. Core Consumer Price Index inflation was 3.1% year-on-year.
UK business activity: Consensus forecasts for the flash May reading of the UK purchasing managers index (PMI) has manufacturing activity falling to 51.2 from 53.7 in April, and services weakening to 51.7 from 52.7.
UK retail sales: New retail sales numbers for the UK are due on Thursday. Sales rose 0.7% month-on-month and 1.7% year-on-year in March.
UK jobs data: Consensus expectations have the UK unemployment rate rising to 5.3% in March – up from 4.9% in February – and earnings rising 3.8%, in line with the previous month.
US business activity: Consensus expectations for the flash May reading of the US PMI is that manufacturing activity will slow – falling to 53 from 54.5 in April – while services will tick up from 51 to 51.1.
Japan economic growth: Consensus expectations around the preliminary reading of Japan’s Q1 GDP is for a quarter-on-quarter rise to 0.4% – up from 0.3% – and a rise of 1.5%, year on year, from 1.3% in the previous period.
In focus: Reality check
For some weeks now, the stockmarket’s sunny optimism has felt incongruous. Any hope of an early resolution to the Iran crisis has faded and energy prices remain high – and yet, while bond markets were clearly worried, their equity equivalents continued to hit new highs. The latest round of inflation numbers from the US may, however, have provided a reality check.
The new Consumer Price Index data showed prices rising 3.8% year-on-year in April – significantly higher than the 3.3% seen in March and well above the Federal Reserve’s 2% target. Core inflation also surprised on the upside: at 2.8%, this was the highest level recorded since May 2023 and above consensus economists’ forecasts of 2.7%. Prior to the Iran attacks, inflation had been dropping and February’s reading was 2.4%.
The US Producer Price Index (PPI) offered a similar picture – at 6%, it was the fastest annual pace of growth since December 2022. Meanwhile core PPI, which excludes food, energy and trade costs, was up 4.4% in April, compared with 3.7% the previous month.
This was also the first month since April 2023 that inflation was above wage increases. The latest wage data showed pay growing at 3.6% from April of last year – 20 basis points behind inflation. Nor was it just energy pushing prices higher: the data also showed a marked increase in housing costs – albeit partly created by an anomaly in the way data was collected during the government shutdown in October. Food costs also rose.
All of which is likely to see borrowing costs remain high. “This inflation print doubles down on the narrative that the Fed’s policy trajectory going forward is skewed to a hike rather than a cut,” observes Christophe Boucher, chief investment officer at ABN AMRO Investment Solutions.
It also leaves the US consumer looking very exposed and with little in the way of wiggle room. US credit card debt stands at a record $1.28tn (£958bn), with the average household carrying more than $11,000 in revolving balances, according to the Federal Reserve Bank of New York. The household savings rate in the US meanwhile stands at just 3.6% – its lowest rate since the immediate aftermath of the Covid crisis. For context, it is 9.9% in the UK – more than double what it was four years ago.
The decline does not need to be terrible. The conflict does not need to get worse – it just needs to rattle on for longer than people expected to cause a lot of damage.”
The data appears finally to have dented the market’s giddy optimism. The S&P 500 dropped 1.24% on Friday, while the FTSE 100 was down 1.71%. For its part, the US 10-year treasury started the week at 4.36% and ended it at 4.60%.
According to Alastair Irvine, investment director in the Jupiter independent fund team, inflationary pressures had become too difficult to ignore. “The price of oil-derived polymer raw material is up 34% year-to-date and physical shortages are appearing,” he says. “In food, thanks to the shortage of fertilisers, US wheat has increased in price by 23% over the same period.”
Energy prices are set to remain high too. “The oil futures price remains above $90 all the way out to October – still 50% higher than at the beginning of the year,” Irvine continues. “Manufacturers are warning of the inflation momentum that is already locked into the system. Even if the oil market immediately returned to the status quo ante, the pernicious effect of highly elevated prices will take months to unwind. There is only so much that can be absorbed internally by companies before profitability is severely affected.”
For his part, Michael Field, chief equity market strategist at Morningstar, believes global growth forecasts have not yet adjusted to the impact of the crisis – particularly in emerging markets. “We are not in a great place,” he says. “Markets are at all-time highs and the news could get worse. The decline does not need to be terrible. The conflict does not need to get worse – it just needs to rattle on for longer than people expected to cause a lot of damage.”
Field argues it was naïve for investors to think companies would not be affected by the mounting economic challenges. “They may have their own nuances and structural growth elements but they are working off what growth is in the economy,” he adds. At the same time, Field continues, there has been a lack of alternatives: gold has been weak, crypto has not been doing well either and bond markets have been volatile.
Even the best-run companies cannot fully offset higher input costs, tighter financial conditions or slowing demand.”
“With equities, they are seeing the structural growth of AI and thinking, Maybe we are in a downturn,” he says. “This theme is structural and it is growing, however – yet they have concluded that is a safe place to be right now.”
Meanwhile, the gap between sector performance is growing. “The consumer sector, for example, has been particularly weak,” notes Field. “It is like the statistician who has his head in the oven and his feet in the freezer, and says, overall, he feels about the right temperature. Markets may be at all-time highs but there are different drivers for that.”
This being so, the stockmarket rally looks increasingly fragile and dependent on a single theme. “US shares, in particular, appear to be trading as though the US sits at a safe distance from global shocks,” says Patrick Farrell, group chief investment officer at Charles Stanley.
“While it may be less directly exposed to certain conflicts, though, it is far from insulated. Energy prices tell that story clearly. Rising fuel costs feed quickly into consumer spending, corporate margins and growth expectations. They act as a tax on the economy, regardless of where a conflict is physically located. Optimism that ignores those mechanisms could be built on shaky ground.”
Some sectors are already reflecting some economic damage but other parts of the market are acting as if they are immune. Even the AI trend is vulnerable to weakening economic growth. As Farrell points out: “Even the best-run companies cannot fully offset higher input costs, tighter financial conditions or slowing demand.” Further market shocks still look very possible.
Read more on this from Charles Stanley here and from Jupiter here
In focus: ‘Nul points’ for gilts
Saturday night’s Eurovision song contest final could almost have been a proxy for government bond markets, with the UK receiving ‘nul points’. After a week of political turmoil, the country’s borrowing costs are now higher than any other developed nation, which could pose a significant threat to its financial stability.
Also like Eurovision, it can feel very much as if the UK is being picked on. You are likely to find as many people arguing the UK is in great financial shape as you will find humming Look Mum, No Computer’s ‘Eins, Zwei, Drei’ on Monday morning but a single, solitary point? The UK 10-year bond yield is now meaningfully higher than that of Italy, Greece, France and Canada, who have debt-to-GDP ratios of 138%, 150%, 118% and 113.5%, respectively. For its part, the UK’s debt-to-GDP ratio is ‘just’ 94%.
Equally, the latest GDP figures were encouraging, showing the economy growing at 0.6% in the first three months of 2026, driven by a 0.8% boost in the services industry. “Consumption provided a further tailwind with stronger retail sales,” adds Scott Gardner, investment strategist at J.P. Morgan Personal Investing.
“Home sales have also provided a bright spot during the quarter, which could strengthen in the next couple of months if buyers move quickly to finalise purchases before expected rate hikes later this year.” In per capita terms, this is the strongest growth in four years and the fastest among all G7 countries.
Few are taking much encouragement from this, however. “The consequences of the conflict in the Middle East are still unfolding and, following a good start to the year, the UK economy could be stopped in its track,” warns Rob Morgan, chief investment analyst at Charles Stanley.
“The sudden increase in global oil and gas prices threatens to reignite inflation, drain household finances and squeeze company profits, which is set to put the skids under a buoyant start to the year.” He also suggests the UK is at risk of an “unwelcome cocktail of ’stagflation’ – stubborn inflation and weaker growth – that dents both corporate performance and household budgets”.
And then there is the politics, with the UK possibly on the verge of swapping a fiscally prudent administration for one rather less so. Of course, this may be less of a risk than fixed income investors apparently fear – after all, even Andy Burnham cannot change the basic bond-market maths.
If any new administration chooses to ignore the bond markets, they – or more accurately ‘we’ – will be paying more on debt interest, which will leave them – us – less for healthcare, schools and welfare. Even the most deranged socialist would eventually be forced to face reality. One might think.
The uncertainty, however, is the killer. The UK needs to attract global buyers for its debt – and, at present, that particular jury is concluding they have better options available in more stable markets. Gilt yields may look irrational but they could remain that way for some time.
