Global market wrap May 2026

Global markets faced a more challenging backdrop through April as inflation pressures re-emerged, energy prices surged, and geopolitical tensions intensified following the closure of the Strait of Hormuz. While underlying economic activity across several major economies remained resilient, higher oil prices and renewed inflation concerns have complicated the outlook for central banks and investment markets.

In Australia, underlying inflation remained stubbornly elevated. Trimmed mean inflation held steady at 3.3% over the year to March, while quarterly trimmed mean inflation increased by 0.8%. Although inflation did not accelerate further, headline CPI rose sharply to 4.6% annually, driven largely by a significant increase in fuel prices, rising housing costs, and higher electricity prices as government rebates rolled off. With the cash rate now at 4.10% following two consecutive rate hikes, markets increasingly expect the Reserve Bank of Australia to maintain a cautious stance toward further policy easing.

The United States continued to demonstrate underlying economic resilience despite concerns about inflation. Real GDP rebounded strongly in the first quarter of 2026, expanding at an annualised rate of 2.0%, supported by consumer spending, exports, business investment, and government expenditure. Importantly, private sector activity remained robust, with core GDP growth accelerating to 2.5%.

Business investment in the US was particularly strong, rising 8.7% annualised during the quarter, driven by ongoing investment in artificial intelligence infrastructure and data centre development. Major technology companies have collectively committed unprecedented levels of capital expenditure toward AI infrastructure, highlighting the continued strength of structural growth themes despite broader market uncertainty.

The US labour market also remained resilient, with payroll growth rebounding in March and unemployment holding at relatively low levels. However, inflation pressures reaccelerated meaningfully. US CPI increased 0.9% for the month, lifting annual inflation to 3.3%, while core PCE inflation rose to 3.2%, well above the Federal Reserve’s 2% target. These outcomes have materially reduced expectations for near-term US interest rate cuts.

In Europe, conditions became increasingly difficult as the region faced a combination of slowing growth and rising inflation. Eurozone inflation increased to 3% while economic growth slowed to just 0.8% year-on-year, reinforcing concerns around stagflation. Although the European Central Bank held rates steady in April to support economic conditions, policymakers now face a more difficult balancing act between containing inflation and supporting growth.

The United Kingdom experienced similar pressures, with inflation rising to 3.3% and expectations for rate cuts largely abandoned. The Bank of England has shifted back toward a tightening bias, adding further pressure to an already subdued domestic growth outlook.

China delivered mixed economic signals during the month. First-quarter GDP growth surprised to the upside at 5.0%, supported by strong industrial production and export activity earlier in the quarter. This provided a constructive backdrop for global commodity demand and Australian resource exporters. However, more recent data revealed emerging weakness, with export growth slowing sharply in March and consumer spending softening as government subsidy effects faded. Weak domestic demand and ongoing challenges in the property sector continue to weigh on China’s medium-term growth outlook.

The key development influencing markets during April was the sharp rise in oil prices following escalating conflict in the Middle East. Brent crude prices rose above USD$126 per barrel, creating renewed global inflationary pressure. Sustained high energy prices reduce household purchasing power, compress company profit margins, and complicate the task facing central banks.

Our base case remains that the global economy can navigate this period of uncertainty, albeit within a more volatile environment. Corporate balance sheets remain healthy, government spending continues to support activity, and the benefits of prior interest rate cuts are still flowing through the global economy. We continue to favour companies with strong structural growth drivers and lower exposure to supply chain disruptions.

However, risks remain elevated. A prolonged conflict in the Middle East, persistently high oil prices, or a sharper slowdown in consumer spending could create a more difficult stagflationary environment for markets. China’s growth trajectory also remains an important variable for Australia, given our reliance on Chinese demand for commodity exports.

At the same time, there are constructive longer-term themes that continue to support investment markets. Ongoing investment in artificial intelligence, domestic manufacturing, and energy infrastructure is expected to support medium-term productivity growth and corporate profitability. While conditions are likely to remain more volatile than in recent years, resilient earnings growth and continued policy support provide a reasonable foundation for markets moving forward.