Geopolitical swings continue to dictate the tone on financial markets. The White House announced on Saturday that positions had converged towards a possible agreement. Tehran, however, indicated that the usual sticking points remain, particularly over nuclear issues. Donald Trump added on Sunday that both parties would take the time required to finalise a satisfactory compromise. Secretary of State Marco Rubio said earlier this morning that a concrete proposal is now on the table to launch time-limited nuclear negotiations. There is a familiar sense of deja vu, yet Brent slipping below the symbolic USD 100 per barrel threshold shows that investors are taking the latest developments seriously. The increase in the number of vessels authorised to transit through the Strait of Hormuz over the past two days has reinforced that sentiment. Bond markets have also steadied. The yield on 10-year US Treasuries has eased from 4.6% on Friday to 4.48% currently.

On equities markets, the extraordinary tailwind from artificial intelligence continued to lift Wall Street last week. The S&P 500 has now posted eight consecutive weekly gains, its longest uninterrupted run since the nine straight weekly advances recorded between 30 October and Friday 29 December 2023. The broad US index is now up 9.2% in 2026. As recently as 30 March, it was still down 7.3% since the start of the year. Europe has responded less spectacularly, although the STOXX Europe 600 has still gained 5.6% year-to-date. It finished every session in positive territory last week and now sits just 1.4% below its record high of 27 February, reached shortly before the outbreak of the war in Iran.

As long as the situation in the Middle East remains unresolved, inflation will stay centre stage. Futures markets now indicate that traders expect the Federal Reserve to raise rates again this year, a sharp reversal from the prevailing theories earlier in the year. Yet investors remain broadly untroubled, convinced that the exceptional earnings growth of US companies can withstand higher interest rates.

This is where Ed Yardeni enters the picture. The strategist, well known for his fondness for stock market catchphrases, has spent the weekend trying to replace the acronym FOMO with FEMO. FOMO, or Fear Of Missing Out, describes investors buying simply because everyone else is buying, often inflating valuations artificially in the process. FEMO, standing for Fabulous Earnings Momentum, instead describes a market driven by genuine earnings strength. According to Yardeni, enthusiasm for AI-related equities is therefore more a case of FEMO than FOMO. His argument is that despite the S&P 500 rally this year, the forward price/earnings ratio is actually declining. That is hardly the classic hallmark of a bubble fuelled solely by exuberance. Many investors appear to share that view, which continues to support buying interest despite warnings coming from bond markets.

Thursday's release of the US PCE inflation indicator should provide a clearer picture of the market's ability to absorb inflationary pressure. The statistic is closely watched by the Federal Reserve in the conduct of monetary policy. However, PCE inflation is something of a lagging indicator, as it is published after both the standard inflation data and producer prices, which have already shown a marked acceleration in April. In Europe, attention on Friday will focus on the first estimate of May inflation in the euro area's main economies. France, Italy and Germany are all expected to report faster price growth, driven by the surge in oil prices.

Other developments worth monitoring at the start of the week:

  • Markets are closed in the United States, the United Kingdom and Switzerland, as well as in Hong Kong and South Korea.
  • Russia struck Ukraine with an Oreshnik missile during one of the largest attacks on Kyiv in recent months.
  • Tulsi Gabbard has resigned from her post as Director of US National Intelligence.
  • A disaster at a coal mine in China has left at least 82 people dead.
  • On the corporate calendar, which is otherwise relatively light, three companies linked directly or indirectly to AI will report earnings: Marvell, Salesforce and Dell.
  • On the macroeconomic front, the second estimate of US first-quarter GDP growth will be released on Thursday alongside April core PCE inflation. In Europe, the preliminary May inflation figures for Germany, France and Italy on Friday will attract the most attention.

In Asia-Pacific trading, Japan's Nikkei 225 surged through the symbolic 65,000-point mark with a 3% gain this morning. The index has risen nearly 30% since the beginning of the year, propelled by AI-related stocks. Other regional markets that were open also advanced: Australia gained 0.45%, India 1% and Taiwan 3%. Western futures indicators are also pointing higher.

Today's economic highights:

See the full calendar here.

  • GBP / USD: US$1.35
  • Gold: US$4,556
  • Crude Oil (BRENT): US$97.71
  • United States 10 years: 4.48%
  • BITCOIN: US$77,351.3

In corporate news:

  • MFE-MediaForEurope plans to challenge a Spanish court ruling ordering it to pay €74 million in compensation to ITV over a game show format dispute.
  • BP has decided not to reduce maintenance craft employees at its Whiting refinery in the US and has offered pay hikes and bonuses to advance union negotiations.
  • Delivery Hero confirmed it has been approached by Uber Technologies regarding a possible takeover offer at EUR 33 per share. DoorDash is also said to be interested. The Financial Times reports that Uber is preparing to raise its bid.
  • Partners Group plans legal action against Grizzly Research over its critical report.
  • Galderma has received FDA approval for an acne treatment gel.
  • Orsted is considering the sale of US renewable energy assets worth more than USD 1 billion, according to Bloomberg.
  • Novo Nordisk has received a positive opinion from the European Medicines Agency for the 7.2mg Wegovy pen.
  • Italy's CDP has approved increasing its stake in Nexi to 29.9%.
  • Mercedes-Benz plans to launch its automated urban driving system in Germany in 2026.
  • Nvidia's chief executive said the company's estimate of a USD 200 billion CPU market includes China.
  • Boeing was found not guilty in a trial related to the grounding of the 737 MAX.
  • Baby Yoda has revived the Star Wars franchise (Walt Disney) with a global opening of USD 165 million.
  • BHP Group advanced as metallurgical coal prices surged following the explosion at a Chinese mine.

See more news from UK listed companies here

Analyst Recommendations:

  • Easyjet Plc: UBS maintains its buy recommendation and reduces the target price from GBX 635 to GBX 555.
  • Inditex Sa: JB Capital Markets S.V., S.A. maintains its neutral recommendation and reduces the target price from EUR 50.50 to EUR 49.60.
  • Rwe Ag: Grupo Santander maintains its outperform recommendation and raises the target price from EUR 49 to EUR 66.35.
  • Compagnie Financiere Richemont Sa: Anchor Securities Stockbrokers maintains its buy recommendation and reduces the target price from CHF 183 to CHF 180.
  • Hochtief Ag: Bernstein maintains its market perform recommendation and raises the target price from EUR 435.90 to EUR 532.60.
  • Siemens Energy Ag: CICC maintains its outperform rating and raises the target price from EUR 123 to EUR 210.
  • Delivery Hero Se: Jefferies maintains its buy recommendation and raises the target price from EUR 29 to EUR 42.50.