Estimated read time: 4 minutes
May was shaped by developments in the Middle East, as concerns over escalating tensions between the US and Iran gradually gave way to optimism around a potential ceasefire. Lower-than-expected UK inflation provided encouragement that interest rates may continue to ease over time, while ongoing enthusiasm for Artificial Intelligence (AI) helped push global equity markets to new highs.
Memo’s in May
Events in the Middle East remained firmly in focus throughout May, driven by the ongoing conflict between the US and Iran. Early in the month, fears of further escalation caused oil prices to rise sharply. However, sentiment improved as ceasefire negotiations progressed and reports emerged of a tentative 60-day memorandum of understanding that could extend the current ceasefire and open the door to nuclear discussions. While the agreement has yet to be formally signed, markets responded positively to the prospect of de-escalation.
After briefly moving above $110 per barrel, Brent crude oil fell back into the low $90s by month-end. Although this provided some relief for investors and consumers, prices remain elevated compared with levels seen before the conflict began.
In the UK, inflation came in below expectations. While the Bank of England chose to leave interest rates unchanged, the data strengthened expectations that rates could continue to move lower over time. Government bond yields declined as confidence improved, helping to reduce borrowing costs. Even so, yields remain at relatively high levels by historical standards.
Equity markets continued to advance despite geopolitical uncertainty. The main US index reached another record high, supported by continued investor enthusiasm for AI-related businesses. The theme also helped drive gains across technology-focused markets in Asia, particularly South Korea and Taiwan. While the opportunities created by AI remain significant, questions remain about how long the current pace of optimism can continue.
Bottom Line
Tensions between the US and Iran appear to have eased, but the situation remains fragile. At the same time, strong equity market gains and persistent enthusiasm for AI have left expectations elevated. While markets have remained resilient, there is still potential for volatility and further developments as the year progresses.
Q&A
What happened at the US and China talks?
In mid-May, leaders from the US and China met in Beijing for a two-day summit against the backdrop of ongoing conflict in the Middle East. Discussions centred on trade, technology and regional security, with Iran and Taiwan emerging as key areas of focus. Taiwan remains particularly important for investors due to its central role in semiconductor production and the growing demand for AI technologies.
Although both sides described the talks positively, the meeting produced few concrete outcomes. The discussions highlighted the continuing strategic tensions between the world’s two largest economies while maintaining open channels of communication.
SpaceX IPO: why is it attracting so much attention?
SpaceX is expected to launch what could become the largest IPO in history, with reports suggesting a valuation of around $1.75 trillion. Investor interest extends well beyond the company’s rocket-launch business and includes Starlink, government and defence contracts, AI initiatives and long-term space exploration projects.
Many investors increasingly view SpaceX as a broader technology and communications company, with its space programme forming part of a much larger ecosystem. As a result, the proposed IPO is widely expected to be one of the most significant market events of the year.
What impact has UK political uncertainty had on markets?
The past month proved challenging for Sir Keir Starmer and the Labour Party following disappointing local election results and renewed scrutiny of the Prime Minister’s leadership.
Political uncertainty was most visible in the UK bond market, where government bond prices fell and yields rose earlier in the month. Investors were concerned that ongoing energy market disruption could keep inflation higher for longer, while uncertainty around future government policy also weighed on sentiment. Bond markets recovered later in the month as inflation data improved and confidence grew that interest rates could continue to decline over time.
Month by Numbers
As at 31 May 2026
Equities
- UK: +0.52%
- Europe: +4.03%
- US: +5.23%
- Emerging Markets: +9.67%
- Japan: +6.64%
Bonds / Rates
- UK Base Rate: 0.00% (3.75%)
- Fed Funds Rate: 0.00% (3.75%)
- UK 10-Year Yield: -0.20% (4.82%)
- US 10-Year Yield: +0.04% (4.44%)
Currencies
- GBP/USD: -0.77% ($1.35)
- GBP/EUR: -0.42% (€1.15)
- DXY (USD Index): +0.87% (98.91)
Commodities
- Gold: -1.80% ($4,539.27)
- Oil (Brent): -19.26% ($92.05)
Noteworthy
- Samsung Electronics Co Ltd: +54.30%