Global equity markets delivered a broadly positive performance in May, but it was bond markets that commanded the most attention, according to EXANTE’s latest monthly markets brief.
Sovereign yields surged to their highest levels in nearly two decades across the US, Japan and Germany, raising fresh questions about whether fixed income turbulence could yet undermine the equity rally.
In the US, equities pushed higher on the back of a stronger-than-anticipated earnings season. The S&P 500 rose 4.32% month-to-date, the Nasdaq 100 surged 9.18%, the Dow Jones Industrial Average added 2.00% and the Russell 2000 climbed 4.29%.
The US yield curve underwent a bear flattening over the month, narrowing the spread between two- and ten-year yields by 5.7 basis points. The US dollar index gained 1.15% month-to-date on safe-haven demand, while gold slipped further as higher-for-longer rate expectations weighed on the non-yielding asset.
The ongoing war with Iran has fanned energy price pressures, feeding through into hotter-than-expected inflation prints. Annualised headline inflation reached 3.8% in April 2026, up from 3.3% the prior month, while core CPI came in at 2.6% year-on-year.
Structural costs linked to artificial intelligence investment and swelling government debt issuance have compounded negative investor sentiment. The American labour market remains resilient, though non-farm payrolls added a modest 115,000 jobs in April and the unemployment rate ticked up to 4.3%. Real average hourly earnings fell 0.5% month-on-month, eroding household purchasing power. The University of Michigan sentiment index fell for the third consecutive month to 44.8, with long-run inflation expectations climbing to 3.9%.
In the eurozone, the S&P Eurozone Flash Composite PMI slid to 47.5 in May, a 31-month low, as headline inflation jumped to 3.0% in April, its highest since September 2023, largely driven by a 10.9% surge in energy costs attributable to Middle East supply disruption. The European Central Bank’s wage tracker points to negotiated wage growth of approximately 3.2% in 2025, a rate the ECB regards as broadly balanced.
The UK is facing its own pressures. Business activity contracted in May, ending a 12-month expansion run, as the composite PMI fell sharply to 48.5 from 52.6 in April. Private sector payrolls declined for the twentieth successive month and job vacancies fell to their lowest level since 2021. A temporary dip in headline inflation to 2.8% offered some comfort, but is expected to be short-lived as higher energy costs continue to filter through.
For more insights, the full monthly briefing can be read here.
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