Monthly Market Perspective – May 2026

During the month of May, markets operated in an environment characterised by a fragile geopolitical balance, a persistent energy shock and growing uncertainty surrounding the trajectory of monetary policy.

The combination of an unresolved conflict, inflationary pressures that have not yet been fully absorbed, and signs of cyclical slowdown contributed to elevated volatility, particularly in fixed income markets.

Over the month, the perception that major central banks remain behind the curve relative to inflation dynamics became more pronounced, despite operating in a context of limited visibility.

• Federal Reserve
  The internal debate within the FOMC appears increasingly fragmented. Alongside the expectation that policy rates may remain at restrictive levels for longer, some members do not rule out further rate hikes should the energy shock fail to normalise. The central issue is not the sustainability of U.S. public debt or the role of the dollar, but rather the risk premium required by the market on Treasuries.

• European Central Bank
  In Europe, the backdrop remains one of low intensity stagflation. Recent communications indicate increased attention to inflation risks in an environment of weak growth. The short end of the yield curve remains particularly sensitive to revisions in expectations.

Overall, yield curves continue to reflect a “higher for longer” rate environment, with bear flattening dynamics still evident.

Macroeconomic data released during the month confirm a cyclical divergence between the two main economic areas.

• United States
  Growth remains moderate but resilient, supported by high margin investments, particularly those related to artificial intelligence. The labour market continues to show strength, with no clear signs of wage driven inflationary pressure.

• Europe
  The euro area appears more vulnerable, with signs of stagnation in the manufacturing sector, weakening confidence and contraction in services. A recession has so far been avoided, partly thanks to expansionary fiscal policies and inventory management, but downside risks remain.

Geopolitics continued to represent the main market driver throughout May.

The mid month U.S.–China summit failed to deliver a structural breakthrough, scaling back expectations of a rapid normalisation of the global environment. The key risk indicator remains the Strait of Hormuz, whose status directly influences:

• inflation expectations
• the evolution of yields
• investors’ risk appetite

A full reopening could trigger a new risk on phase, this time also extending to fixed income. Conversely, a deterioration in the situation would likely push markets back toward defensive assets and higher liquidity.

Over the month, the divergence between equity and fixed income markets became more pronounced.

• Equity
  Equity markets, particularly in the United States, continued to show strength, supported by earnings growth and technology investment. However, multiple expansion and certain positioning indicators suggest an increasing risk of valuation excesses.

• Fixed Income
  Fixed income markets remain more sensitive to the inflation growth trade off. The short end of the curve continues to incorporate elevated risk premia, while the long end appears more defensive from a medium term perspective.

Beyond geopolitics and the risk of equity excesses, public debt management represents a third structural vulnerability.

In the United States, the debate is increasingly focused on the level of yield required by the market to absorb rising Treasury issuance. In this context, new players are emerging, such as the stablecoin ecosystem, which could over time contribute to demand for short term government debt.

The month of May confirmed a complex and unstable environment in which:

• macro visibility remains limited
• inflation continues to represent the main constraint on monetary policy
• geopolitics and energy remain the primary market catalysts

In this context, portfolio management requires discipline, selectivity and close attention to potential turning points, while maintaining a prudent, medium to long term oriented approach.