Global Market Overview

• May was a volatile but ultimately more constructive month than March and April. Global equities sold off mid-month as inflation fears returned, but risk appetite improved into the final third of May as investors focused on signs of progress in US-Iran talks and a partial easing in bond-market stress.
• The dominant market theme remained the inflationary impact of the Middle East conflict. Reuters reported that global equities fell and bond yields surged on May 15 as investors raised bets that the Fed may need to hike again, before markets later recovered as diplomatic hopes improved.
• Bond markets remained fragile. Reuters described global bonds as being under pressure from inflation fears as investors reassessed the economic cost of the Iran war and its impact on central-bank policy.

United States

• US equities were choppy in May, with technology leadership tested by higher yields and renewed inflation concerns. Mid-month weakness gave way to a late-month rebound as yields dipped and investors grew more hopeful about geopolitical de-escalation.
• The Fed remained cautious. Policymakers signalled that if inflation pressures persist, policy may need to respond, reinforcing the view that the easing cycle is effectively on hold until energy-driven inflation risks fade.
• Treasury yields rose sharply during the month's inflation scare, then eased as risk sentiment improved. Credit markets stabilized late in May, though high-yield spreads remained wider than before the March shock.

Eurozone

• Eurozone conditions deteriorated meaningfully in May. Reuters reported that private-sector activity fell at the steepest rate in 18 months, with the composite PMI dropping to 48.5 and inflation rising to 3.2%, well above the ECB's 2% target.
• The ECB's May Financial Stability Review warned that the Middle East war was testing economic resilience by disrupting energy and commodity supply, weakening growth prospects, increasing inflation, and tightening financial conditions.
• European equities recovered somewhat into month-end, but the macro backdrop remained challenging: weak activity, elevated input costs, and uncertainty over whether the ECB can resume easing without risking inflation credibility.

United Kingdom

• UK markets were caught between slowing growth and renewed inflation risk. The Bank of England's current Bank Rate remained at 3.75%, while UK inflation was listed at 2.8%, above the 2% target.
• BoE rhetoric turned more hawkish at the margin. Megan Greene warned that the case for raising rates grows the longer the Iran conflict persists, arguing that waiting for obvious second-round inflation effects could be too late.
• Gilts were volatile, initially pressured by higher global yields and later supported by safe-haven demand. UK equities were mixed, with energy and defensive sectors outperforming more rate-sensitive domestic names.

Asia-Pacific and China

• Asia-Pacific markets broadly improved late in May as global risk appetite recovered, though energy-importing economies remained sensitive to oil-price volatility.
• China remained a key stabilising variable for global markets. Industrial activity and exports showed signs of resilience, but property weakness and cautious consumer demand continued to limit confidence.
• Policy support remained targeted rather than aggressive, with investors favouring sectors linked to infrastructure, strategic manufacturing, electrification, and state-backed investment priorities.

Emerging Markets

• Emerging markets were mixed but improved toward month-end as the dollar stabilized and global yields eased. Commodity exporters generally outperformed energy importers.
• Countries with strong external balances and credible monetary frameworks attracted selective inflows, while more vulnerable economies remained exposed to oil-price volatility and tighter global financial conditions.

Commodities

• Energy remained the centre of market attention. The World Bank projected energy prices to surge by 24% in 2026, with overall commodity prices forecast to rise 16%, driven by the Middle East conflict and record-high prices for several key metals.
• Oil stayed elevated but less disorderly than in March, with prices reacting sharply to headlines around the Iran conflict and potential diplomatic progress.
• Gold remained supported by safe-haven demand, central-bank buying, and lower real-yield expectations, while copper benefited from structural demand linked to electrification, AI infrastructure, and tight mine supply.

Fixed Income & Currencies

• Global bond markets remained under pressure for much of May as inflation fears pushed yields higher. Mid-month stress was particularly acute, with investors reassessing whether central banks may need to delay cuts or even consider renewed tightening.
• Credit markets stabilized late in the month, but investors remained selective. Investment-grade credit was preferred over lower-quality high yield, where refinancing risks and sensitivity to growth shocks remained elevated.
• The dollar was firm during risk-off periods but softened slightly as markets recovered. Sterling and the euro traded mainly on relative inflation and central-bank expectations, while EM currencies diverged sharply by commodity exposure and external vulnerability.

Outlook

• June will be shaped by three linked questions: whether the Iran conflict de-escalates, whether energy prices feed into core inflation, and whether central banks can maintain a cautious hold rather than return to tightening.
• For now, the global macro backdrop remains fragile: growth is slowing in Europe, inflation risk has risen again, and bond markets are less willing to price an easy return to rate cuts.
• Chelsea Capital maintains a cautious but constructive stance, favouring quality equities, resilient cash flows, selective investment-grade credit, balanced duration exposure, and real assets that can help portfolios withstand persistent inflation and geopolitical volatility.