Global markets closed the week of 5–9 May at fresh record highs, extending a six-week winning streak supported by strong AI-driven earnings. The S&P 500 rose 2.3% to 7,398.93, while the Nasdaq gained 4.5% to 26,247.08, with both indices setting new intraday and closing records. The Dow lagged, up just 0.2%, underscoring the concentration of gains in technology and AI-linked stocks.

A stronger-than-expected April nonfarm payrolls report reinforced confidence in economic resilience despite elevated oil prices and ongoing geopolitical tensions. Payrolls increased by 115,000 versus expectations of around 55,000, while unemployment remained steady at 4.3%. Markets also stayed sensitive to developments surrounding the Strait of Hormuz, with oil briefly trading above $100 before easing.

Key Points to Watch

• U.S. CPI and PPI — The Inflation Reality Check: Tuesday’s CPI release is the most important macro event of the week. Markets will assess whether inflation pressures are beginning to reaccelerate.

• Retail Sales and Consumer Strength: Thursday’s retail sales data will provide further insight into consumer resilience. Weakness alongside firm inflation could revive stagflation concerns.

• Trade and Geopolitical Developments: Focus remains on the Trump–Xi summit and ongoing Iran negotiations. Oil price movements continue to be central to market direction.

• Earnings Slow but AI Themes Continue: Key reports will help assess the durability of AI-driven demand, with investors closely watching order visibility into the second half of the year.

United States: Strong Growth, Rising Inflation Anxiety

The key debate is whether the U.S. economy is moving toward a no-landing scenario rather than a soft landing. Recent payroll data continues to support growth and earnings expansion, particularly across technology and industrial investment cycles. However, oil prices near $100 are increasing inflation risks and limiting the Federal Reserve’s flexibility to ease policy.

This creates a more challenging environment for risk assets. The S&P 500 is trading at elevated forward valuations while expectations for rate cuts continue to decline. Markets appear comfortable with higher rates for longer, provided earnings—especially AI-related earnings—continue to outperform. This balance, however, remains heavily dependent on inflation staying contained.

Europe & UK: Inflation Imported Through Energy

European markets benefited from the global AI rally but remain more exposed to energy price volatility. Sustained high oil prices would quickly feed into industrial costs and consumer inflation across both the euro area and the UK.

The European Central Bank and the Bank of England remain cautious about easing policy prematurely, with expectations shifting toward a longer period of restrictive monetary conditions. In the UK, inflation remains particularly sensitive to energy and food prices, while underlying growth continues to soften.

Asia & FX Dynamics

Asian equities outperformed, led by semiconductor sectors in South Korea and Taiwan benefiting from global AI demand. However, the region remains highly sensitive to U.S.–China trade developments ahead of the Trump–Xi meeting.

In Japan, yen volatility persists as the Bank of Japan balances inflation pressures with currency stability. A rise in U.S. Treasury yields following CPI data could increase pressure on the yen and raise the likelihood of further intervention.

Commodities & Rates

Oil remains the key macro variable. Although prices eased late last week, geopolitical risks persist. Any disruption to shipping through the Strait of Hormuz would quickly impact global inflation expectations.

Gold has stabilised but continues to be influenced by competing forces, including geopolitical demand and higher real yields. Meanwhile, Treasury markets face a pivotal moment ahead of CPI. A softer inflation reading could support continued equity gains, while a stronger print may trigger a broader market repricing.

Conclusion

Market momentum remains strong, supported by AI-driven earnings, resilient economic data, and cautious optimism surrounding geopolitical developments. However, underlying risks continue to build. Elevated oil prices, rising inflation pressures, and concentrated equity leadership leave markets vulnerable.

This week’s CPI release will be critical in determining whether the rally can extend further or begin to face meaningful resistance. After six consecutive weeks of gains and fresh record highs, markets now require confirmation that inflation is not reaccelerating. Without that confirmation, volatility could return more quickly than expected.