2026 Weekly Update

Market update

The S&P 500 closed the week at 7230.12, +0.91% higher. The Dow Jones closed at 49499.27, +0.55%, with the Nasdaq higher by +1.12%. The volatility index VIX closed the week at 16.99, down from 18.71. The Euro Stoxx 600 rose +0.15%. 

The 10-year UST closed at 4.37%, up from 4.3% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 70bps. US Corporate Bond spreads: Investment Grade spreads narrowed 3bps at 84bps and High Yield spreads narrowed -3bps at 325bps. German 10-year Bunds yield closed at +3.04% up from +2.99% a week before. In Europe, Corporate Investment Grade spreads narrowed 1bp at 93bps and High Yield narrowed 5bps at 329bps.

The US Dollar Index (DXY) depreciated -0.38% last week and closed at 98.16. The Euro closed at 1.1721 (-0.01%); the Yen appreciated +1.49%, closing at 157.01 and the Swiss Franc appreciated +0.37%, closing at 0.7821. Gold closed at $4614.21, depreciating -2.02%. Oil was higher, Brent closed at $108.17 (+2.70%) and WTI at $101.94 (+7.99%).

Macroeconomy

The Fed

The FOMC left its policy rate unchanged at 3.5-3.75% but Chair Powell suggested the center of the committee is moving “towards a more neutral” bias due to inflation concerns, implying the next move is roughly equally likely to be a cut or a hike. While the FOMC majority opted to retain the existing easing bias in the forward guidance — citing no immediate urgency to change it this meeting — three regional Fed presidents dissented in favor of shifting to a neutral stance immediately. Incoming Chair Warsh, who does not believe in forward guidance, is likely to suggest a revamp of the policy statement at his first meeting. The baseline among Fed officials points to an extended hold for now. Markets are now back to pricing low chances of hikes going forward. Lastly, in his final press conference as Fed Chair, Powell announced he will stay on as Fed governor (term ends in January 28) “for a period of time to be determined” until the legal case is well and truly over.

US GDP

US Q1 GDP grew at a 2.0% annualized pace, below the median estimate of 2.3% but accelerating from 0.5% in Q4 2025. Business investment was the biggest driver of growth with nonresidential fixed investment being the most significant contributor coming mainly from investments in AI. Consumer spending remained strong at +1.6% q-o-q, down from 1.9% in Q4 2025. A rebound in federal spending following last fall's government shutdown helped boost growth.

US debt-to-GDP

The US national debt now exceeds 100% of gross domestic product, with the country's publicly held debt at $31.265 trillion and GDP at $31.216 trillion as of March 31. The government is spending $1.33 for every dollar it collects in revenue, and the budget deficit this year is projected at $1.9 trillion, with the debt-to-GDP ratio likely to climb due to historically large annual deficits. CBO (Congressional Budget Office) projects debt will rise to 120% of GDP by 2036 and 175% by 2056.

US data

The PCE inflation data for March showed headline PCE at a monthly pace of +0.7%, with the y-o-y print moving up to +3.5%. The print was as expected but it means that PCE inflation has now been above the Fed’s 2% target for five full years. Conference Board’s consumer confidence surprised on the upside in April, rising to its highest level of 2026 so far at 92.8 (vs. 89.0 expected). Weekly initial jobless claims fell to their lowest level since 1969, coming in at just 189k in the week ending April 25 (vs. 212k expected). Housing starts came in at an annualized rate of 1.502m in March (vs. 1.380m expected), the strongest since December 2024.

ECB

The European Central Bank (ECB) kept policy rates unchanged, stating that "incoming information has been broadly consistent with the Governing Council's previous assessment of the inflation outlook". However, the statement emphasized that "upside risks to inflation and downside risks to growth have intensified". The press conference had a hawkish tone, with President Lagarde noting, “we are certainly moving away from our baseline scenario”. She also mentioned that, while the decision to hold rates was unanimous due to the absence of second-round effects, there was significant debate about the possibility of a rate hike. The duration of the ongoing conflict will be crucial for the policy outlook.

EU data

Euro area GDP (flash estimate) grew by 0.1% q-o-q in Q1, following a 0.2% increase in Q4, falling short of expectations. The downside surprise was mainly due to weaker results in France and Ireland, while Germany, Italy, and Spain outperformed expectations. GDP details were mixed, with strong domestic demand in Spain and Germany, but disappointing results in France. Euro area headline inflation (flash estimate) rose to 3.0% y-o-y in April (the fastest pace since September 2023), up from 2.6% in March, driven by higher energy prices, especially fuels. Core inflation eased, falling to 2.2% in April from 2.3% the previous month, mainly due to base effects from an earlier Easter this year, which lowered the y-o-y rate for services (especially holiday packages). At the country level, the pattern was consistent, with rising headline inflation and easing core inflation. In Germany, the flash CPI print for April surprised on the downside, with the EU-harmonized reading only up to +2.9% (vs. +3.1% expected).

EU economy

ECB’s latest bank lending and inflation expectation surveys pointed to upside inflation risks combined with downside growth risks. Notably, 1yr and 3yr inflation expectations surged from +2.5% to +4.0% and +3.0% respectively, their highest levels since 2023. Longer-term expectations were more stable at +2.4% (up from +2.3%). Meanwhile, the Bank Lending Survey showed a clear deterioration, pointing to the tightest credit conditions since early 2024. Also, the EC Economic Sentiment Indicator (ESI) fell by 3.2 points in April, reinforcing the softening signal from last week's flash PMI. The decline was concentrated among consumers and service providers. Sentiment in manufacturing deteriorated more modestly, though both sectors remain at historically low levels. Notably, sentiment declined across all countries, with Germany seeing the sharpest drop. At these levels, the ESI suggests almost no growth in Q2 GDP.

BoE

The Bank of England voted to keep the policy rate on hold at 3.75% in an 8-1 majority decision, with Governor Bailey stating that it is "reasonable" to remain on hold given the current economic conditions in the UK and the uncertainties surrounding the Middle East conflict. The Bank noted that there are risks of "material second-round effects" and that it "stands ready to act as necessary" to bring inflation back to target. At the same time, it mentioned that a weaker economy, a softer labor market, and tighter financial conditions could help contain inflationary pressures.

BoJ

Bank of Japan (BOJ) decided to maintain its policy rate at 0.75%, in a split vote of 6-3, marking the largest division under Kazuo Ueda’s leadership. The BoJ have unsurprisingly increased their inflation forecast and cut growth and on balance the statement leans slightly hawkish albeit with the press conference still to come. The yen has appreciated by +0.28%, gaining strength shortly after the announcement, with 2yr JGB yields climbing a couple of basis points at the same time.

Australian data

Australian CPI rose by +4.6% y-o-y in March, marginally below the anticipated +4.8%, but it increased significantly from the 3.7% recorded in the previous quarter. Core inflation, as indicated by the trimmed mean CPI, rose by +3.3% in March, remaining steady from the previous month while still surpassing the Reserve Bank of Australia’s (RBA) annual target of 2% to 3%. Q1 trimmed mean came in at 0.81% q-o-q around a tenth softer than expectations but Q2 so far has continued to see oil prices high so there won't be too much comfort with that print.

UAE quits OPEC

Last week, the UAE announced that it would leave OPEC on May 1. They’ve been a member since 1967 and are the third-biggest oil producer in the group, producing around 3.5mn barrels per day before the conflict, accounting for about 12% of OPEC’s output. The UAE had in the past pushed to increase its production quota within OPEC given its investments in new oil production capacity in recent years. While the near-term impact of the move is likely to be negligible, with closure of the Strait of Hormuz the limiting factor, longer-term this could allow the UAE to increase its oil production and reduce OPEC’s influence over the global oil market.

Highlights

On earnings

The Q1 2026 earnings season continues to show strong momentum, with the blended earnings growth rate for the S&P 500 rising to 27.1%. If this pace holds, it will represent the highest year-over-year earnings growth for the index since the fourth quarter of 2021. So far, 63% of S&P 500 companies have reported results, with 84% delivering positive EPS surprises and 81% beating revenue estimates. Seven sectors are now posting double-digit earnings growth, led by Communication Services (53.2%), Information Technology (50.0%), and Consumer Discretionary (39.0%). In contrast, Europe’s earnings season has been more muted, with only 49% of companies surpassing expectations. Moreover, the region’s growth is skewed by the energy sector, which is currently seeing a substantial 33.7% profit surge driven by geopolitical tensions, where the revenue growth for non-energy firms remains flat or slightly negative at -0.1%. Last week, big tech companies reported their results. Alphabet stood out with strong growth in Google Cloud and Search. Amazon beat expectations, helped by better AWS sales, but its outlook for next quarter was a bit weaker. Meta also did well, though it lost some users and plans to spend more. Microsoft’s numbers were solid, with Azure growing slightly faster than expected, but bookings slowed down. Apple also beat expectations, both on sales and margins. Looking ahead, investors will be watching results from Airbnb on Thursday and Uber on Wednesday. The most important reports will come later in the month from Nvidia on May 20 and Walmart on May 21.

On rates

US rates continued to face downward pressure last week, with investment-grade corporate bonds underperforming Treasuries and posting negative returns The release of March PCE report showed US inflation accelerating to 3.5% year-on-year from 2.8% in February, surpassing expectations and reinforcing concerns about persistent inflation. In Europe, the Economic Sentiment Indicator fell in April to 93.5, its lowest level since November 2020, with consumer confidence particularly weak. In Japan, the benchmark 10-year Japanese Government Bond yield hit its highest level since 1999, climbing to 2.51% as investors reacted to the BoJ signals and the rising inflation concerns linked to the Middle East situation.

Japanese Yen

The yen, which was trading at almost at its weakest level in nearly forty years, experienced a sudden and sharp rally on Thursday, strengthening from around JPY 160.1 to JPY 156.7 against the US dollar. This move was widely interpreted as a sign of official intervention, with Japanese authorities likely stepping in to buy yen and sell dollars to halt further depreciation. The intervention followed increasingly direct warnings from Finance Minister Satsuki Katayama, who had indicated that bold action was imminent, especially after the yen breached the 160 level, a threshold that has previously triggered intervention. Supporting this view, central bank data suggested that Japan may have spent as much as 5.48 trillion yen (approximately $35 billion) to support its currency (Reuters), underscoring the scale of efforts to stabilize the yen amidst external pressures.

What to watch

• Monday: US Durable Goods Orders; Asia Manufacturing PMI
• Tuesday: US ISM Services; JOLTS Job Openings; Switzerland CPI; Australia RBA Cash Rate; Hong Kong Q1 GDP
• Wednesday: US ADP Employment; Eurozone Final Composite PMI
• Thursday: US Challenger Job Cuts, Initial Jobless Claims; Sweden Riksbank Policy Rate; Norway Deposit Rate
• Friday: US Nonfarm Payrolls; Hourly Earnings; University of Michigan Survey; Germany Industrial Production; Japan Labor Earnings; Taiwan April Exports