Daily Market Outlook, May 22, 2026 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — AI Broadens Out, But Oil Keeps the Macro Heat On

Asian equities are finishing the week on a stronger footing as investors look beyond the narrowest AI winners and rotate into a broader set of beneficiaries. MSCI Asia gained 1%, with Japan’s Nikkei up 2.7% and again leading the region. SoftBank surged 11% in Tokyo, tracking strength in Arm Holdings and renewed enthusiasm around AI infrastructure exposure, while Lenovo hit a 26-year high in Hong Kong after strong AI-related earnings. US futures are firmer too, with Nasdaq 100 contracts up 0.5%, and Europe is set to open around 1% higher. The tone is constructive: investors are still willing to pay for companies that can credibly attach themselves to the AI capex cycle. But the macro backdrop is not clean. Brent has moved back above $104/bbl after a three-day decline, as Iranian comments on uranium and the Strait of Hormuz cooled optimism over US-Iran negotiations. Gold is softer near $4,530/oz, suggesting the market is not in outright panic mode, but oil’s resilience matters more for central banks and consumers. The yen remains close to 159 against the dollar, its weakest since April 30, after Japan’s key inflation gauge fell more than expected. That soft inflation print complicates the BoJ’s June hike debate, even though stronger equities and external demand have recently encouraged speculation that policy normalisation could resume.

The UK data continue to show the squeeze from higher prices and weaker real activity. April retail sales fell more than expected, with headline volumes including fuel down 1.3% m/m versus a consensus decline of 0.6%, leaving annual growth flat. Excluding fuel, the fall was milder at 0.4% m/m, close to expectations, and sales were still 1.1% above a year earlier. The fuel category was the main drag, falling 10.2% m/m after March’s 6.6% stocking-up bounce, with some evidence consumers drove less in response to higher pump prices. That volatility may reverse, but the broader message is less benign: food sales rose 0.8% m/m, while all other categories fell, led by clothing and online/non-store sales. Inflation is doing real damage. The overall retail deflator rose 1.3% m/m and 4.6% y/y including fuels, while even excluding fuels, prices rose 3.0% y/y, the fastest pace in 27 months. The GfK survey suggests households have been dipping into savings to sustain spending, which usually implies consumers view higher energy costs as temporary. The risk is that if oil and fuel prices remain elevated, households stop smoothing and start retrenching. That would reinforce the softer tone already evident in labour market data and PMIs. The fiscal picture adds another layer of fragility. The UK deficit for the first month of the 2026-27 fiscal year came in at £24.3bn, £3.4bn above the OBR’s monthly profile. Roughly one-third of the overshoot came from weaker tax receipts and two-thirds from higher spending. The current budget deficit — the key metric for the primary fiscal rule — was £17.4bn, £2.6bn above forecast. More strikingly, the government has already used up more than half of its planned full-year current deficit target of £33.9bn in the first month. That said, the cash requirement was £15.5bn, £6.5bn below the OBR profile, which is relevant for the gilt remit and argues against over-interpreting one month of volatile public finance data. Still, with growth softening and tax receipt assumptions ambitious, the fiscal margin for error is narrowing.

Globally, the oil shock remains the key swing factor. Next Friday marks the 90th day of the US-Iran war, and the market’s earlier comfort from surplus crude, Russian oil flows, weaker demand and higher US output is fading. Trump’s threat of larger strikes and potential restrictions on US refined-product exports could tighten the inflation impulse further. A deal deadline is approaching, but investor confidence in a clean resolution remains limited. The longer the conflict drags on, the more oil moves from a geopolitical risk premium into realised inflation data. That matters for the Fed. Recent US inflation surprises and hawkish FOMC rhetoric are forcing investors to reconsider the dovish policy path they had assumed. Kevin Warsh is set to replace Jerome Powell as Chair, but he will inherit a Committee already showing broader discomfort with persistent inflation. With no immediate Warsh address scheduled, markets are likely to take their cue from rates, inflation prints and Fed speakers. For now, the Fed pause may last longer, and US rates should remain a key driver of Dollar strength..

AI is still strong enough to lift Asia and broaden the equity rally, but oil is still strong enough to keep central banks cautious, consumers squeezed and fiscal risks alive. The market can enjoy the tech rebound, but it cannot ignore the macro heat.

Macro Week Ahead — May 25, 2026

The upcoming week is shortened due to the US Memorial Day holiday, yet key macroeconomic releases will influence market sentiments regarding the impact of the oil shock on inflation, demand, and labor markets. Significant reports include US PCE, durable goods, jobless claims, and first-quarter GDP revisions on Thursday, alongside Japan’s Tokyo CPI and inflation data from Germany and France.

United States: Focus on PCE and Growth Revisions

The US economic calendar starts slowly, with Thursday being pivotal. The PCE inflation report is crucial, especially after recent hawkish shifts from the Fed. A strong PCE reading could reinforce expectations for a prolonged Fed pause, while a weak result may challenge recent hawkish sentiments. Durable goods and capital orders will indicate if rising rates and energy uncertainties are slowing business investment. Weekly jobless claims are also noteworthy for assessing labor market conditions. Consumer confidence data released on Tuesday will reveal household spending intentions amid rising gasoline prices.

Global Inflation Insights: Japan, Germany, and France

Market participants will closely monitor Japan's Tokyo CPI on Thursday, as it may influence the Bank of Japan's policy decisions. A higher CPI could suggest room for normalization, while a lower figure may complicate matters. Additionally, Japan will release jobless rates, retail sales, and industrial production data. In Europe, inflation figures from Germany and France will be crucial for the European Central Bank's (ECB) policy discussions, with German CPI expected to be a key indicator. Canada’s GDP on Friday will also be significant, as it may affect the Bank of Canada’s policy stance.

Market Themes to Monitor

Key market questions include the sustainability of recent risk asset relief and whether AI-driven equity gains can broaden. High oil prices keep inflation expectations volatile, making inflation data particularly impactful. Additionally, US interest rates are likely to drive currency movements; a firm PCE could bolster the Dollar against lower-yielding currencies, especially Dollar-yen amidst ongoing policy discussions by the BoJ.

Overnight Headlines

• German Business Confidence Forecast To Continue Decline

• UK Officials Discuss Fresh Aid Cuts To Fund Higher Defence Spending

• Hormuz Closure Threatens Recession Rivaling 2008, Rapidan Says

• ‘Intense Mediation’ Underway With Pakistani Officials In Iran

• Trump To Deploy 5,000 US Troops To Poland, Nixing Planned Cuts

• Pentagon Doubts Over Rare Earths Deal Provoke White House Clash

• Fed’s Barkin: Policy In Good Place To Respond To Ongoing Shocks

• Trump Will Swear In Warsh On Friday To Lead US Federal Reserve

• Japan’s Inflation Eases As PM Takaichi Eyes More Cost Relief

• Japan’s Extra Budget Not Far From $19B, FinMin Katayama Suggests

• Yield Curves May Steepen Further In Key Southeast Asian Markets

• US Bond Selloff Exacerbated As Mortgage Investors Hedge Rising Yields

• Nintendo Seeks To Top Conservative Switch Forecast By About 20%

• US To Award Quantum-Computing Firms $2B And Take Equity Stakes

• Crypto Industry Braces For Quantum Computing Threat

• Cursor Hits $3B Annual Sales Rate Ahead Of SpaceX Deal

• SpaceX Delays Starship Rocket Launch After Uncovering Issue

• Investors Look Beyond TSMC As AI Boom Spreads To New Winners

FX Options Expiries For 10am New York Cut 

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

• EUR/USD: 1.1825 (EU1.91b), 1.1750 (EU1.81b), 1.1700 (EU1.1b)

• USD/JPY: 156.00 ($2.12b), 159.00 ($1.95b), 158.50 ($1.65b)

• AUD/USD: 0.7160 (AUD869.8m), 0.7125 (AUD538.5m), 0.7150 (AUD508.3m)

• USD/CAD: 1.3750 ($993.7m), 1.3675 ($445m), 1.3850 ($408.1m)

• USD/BRL: 6.8000 ($332.8m)

• NZD/USD: 0.5750 (NZD524m)

• EUR/GBP: 0.8800 (EU539.8m), 0.8700 (EU335.3m)

• USD/CNY: 6.7900 ($500m), 6.7700 ($300m), 6.7550 ($300m)

• GBP/USD: 1.3300 (GBP392.5m), 1.3200 (GBP340m)

CFTC Positions as of May 15, 2026: 

• Bitcoin's net long position is 1,259 contracts

• Swiss franc posts net short position of -36,197 contracts

• British pound net short position is -43,059 contracts

• Euro net long position is 40,200 contracts

• Japanese yen net short position is -75,102 contracts

• Speculators trim CBOT US 5-year Treasury futures net short position by 59,154 contracts to 1,362,145

• Speculators trim CBOT US 10-year Treasury futures net short position by 34,102 contracts to 781,167

• Speculators trim CBOT US 2-year Treasury futures net short position by 70,717 contracts to 1,602,612

• Speculators trim CBOT US UltraBond Treasury futures net short position by 20,441 contracts to 238,994

• Speculators trim CBOT US Treasury bonds futures net short position by 88 contracts to 172,854

• Equity fund speculators increase S&P 500 CME net short position by 28,764 contracts to 418,335

• Equity fund managers raise S&P 500 CME net long position by 42,501 contracts to 1,056,455

Technical & Trade Views

SP500

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 7330 Target 7630

• Below 7330 Target 7250

DXY

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 98.85 Target 99.50

• Below 98.50 Target 96.12

EURUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 1.1710 Target 1.18

• Below 1.1650 Target 1.1570

GBPUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 1.3445 Target 1.3885

• Below 1.34 Target 1.33

USDJPY 

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 160 Target 161

• Below 159.50 Target 157.50

XAUUSD

• Daily VWAP Bullish

• Weekly VWAP Bearish

• Above 4700 Target 4800

• Below 4500 Target 4386

BTCUSD 

• Daily VWAP Bullish

• Weekly VWAP Bearish

• Above 79.5k Target 81k

• Below 79.5k Target 74k