Daily Market Outlook, May 20, 2026 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Inflation Fears Dent the AI Rally

Global equities are extending their pullback as the oil shock keeps bond yields elevated and forces a reassessment of AI-led valuations. The MSCI All Country World Index is down 0.2%, on course for a fourth straight decline and its worst run in more than two months, while the MSCI Asia Pacific fell 1.2%. South Korea’s KOSPI dropped almost 2%, hit by both the broader AI de-rating and Samsung-specific pressure after its labour union announced strike action. Futures point to further losses in Europe and the US, suggesting the market is no longer willing to ignore the inflation implications of the Middle East crisis.

Brent has stabilised around $110/bbl, but stability at this level is not a comfort. With no visible relief in the Iran conflict, investors are treating the energy shock as persistent rather than transitory. The 30yr Treasury yield has climbed to levels last seen in 2007, reflecting concern that the Fed may have to consider tightening again rather than delivering the cuts equity markets had previously assumed. That is the key shift: higher oil is no longer just a geopolitical headline; it is becoming a valuation problem. After record highs in global equities, the question is whether AI earnings growth can continue to justify elevated multiples against a much less forgiving discount-rate backdrop. Nvidia’s earnings now become the critical test of whether the AI capex story can still overpower macro-tightening. Asia’s geopolitical and strategic backdrop also remains busy. Xi Jinping welcomed Vladimir Putin to Beijing for talks aimed at deepening bilateral ties and advancing a long-delayed energy initiative, a reminder that energy security and strategic alignment are becoming increasingly connected. Chinese equities remain under pressure, while Singapore has overtaken Indonesia as Southeast Asia’s largest stock market, reflecting relative resilience in a region where investors are rewarding stability and liquidity.

The UK CPI print looks dovish on the surface but is unlikely to change the MPC’s forward-looking debate much. Headline inflation fell 0.5ppts to 2.8% y/y in April, 0.2ppts below expectations, which looks striking against a global energy crisis. But the fall reflects UK-specific mechanics: the lagged energy price cap, government policy changes, and base effects from last year’s water bills and vehicle excise duty increases not being repeated on the same scale. The downside surprise likely also owes something to Easter timing depressing package holiday prices — a distortion that should reverse quickly. Food inflation easing by 0.7ppts to 3.0% y/y is helpful but not decisive.The bigger point is that April's CPI is likely to be short-lived relief. Direct and indirect fuel effects from the Iran shock should push CPI back above 3% y/y and into letter-writing territory. Services inflation dropped sharply to 3.2% y/y from 4.5%, but given the weight of survey evidence and the likelihood of holiday-price distortions, the MPC will be cautious about extrapolating. In contrast, yesterday’s labour market data were more genuinely soft: unemployment back at 5.0%, PAYE employment down 100k, falling vacancies, net labour market outflows and redundancies still elevated. That gives the wait-and-see camp cover, even if the inflation outlook is about to worsen again. Sterling’s resilience should not be overread. It has been supported by a higher risk premium in the UK rates curve, attracting yield tourists and relative-value flows, but the underlying macro picture remains fragile. Households are still dealing with fiscal drag before the new energy hit is fully felt, and there is limited evidence that they are willing to run down savings aggressively given post-Covid caution. The deeper structural issue is working behaviour: falling full-time hours and weak productivity leave little absorption capacity if financial conditions tighten further. Add political uncertainty that could extend into mid-summer, and the UK remains exposed. 

The global equity rally is now being tested by oil, yields and AI earnings risk, while the UK’s softer data offer only limited comfort against a deteriorating medium-term backdrop.

Overnight Headlines

• EU Expedites Start Of US Trade Deal In Bow To Trump Demand

• US Plans To Shrink Forces Available To NATO During Crises

• NATO Allies Press US For Clarity On Troop Cuts In Europe

• UK’s Chancellor Floats Price Freezes On Food In Bid To Cut UK Bills

• UK Housebuilders Suffer £8B Hit From Iran War

• US Senate Signals Intensifying Opposition To Trump’s War In Iran

• Gold Holds Losses As Iran Impasse Keeps Rate-Hike Bets High

• FX Intervention Risks Rising Again As 160 Yen Comes Back Into Focus

• Japan’s Super-Long Bonds See First Foreign Outflow Since 2024

• Bessent’s Support For BoJ May Clear Political Hurdles For June Hike

• Fed’s Paulson Says Rate Cuts Require Progress On Inflation

• China Leaves Lending Benchmarks Unchanged For 12th Month In May

• Samsung Faces Risk Of Chip Disruption After Labour Talks Collapse

• Nvidia’s Huang Bankrolls AI Boom With $90B Deal Spree

• Meta Begins Job Cuts In Efficiency Push Spurred On By AI

FX Options Expiries For 10am New York Cut 

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

• EUR/USD: 1.1600 (EU1.66b), 1.1800 (EU1.36b), 1.1900 (EU1.16b)

• USD/JPY: 155.00 ($1.44b), 152.00 ($1.3b), 158.00 ($1.11b)

• USD/CNY: 6.8000 ($340m), 6.7350 ($300m)

• USD/CAD: 1.3875 ($1.05b), 1.3350 ($940m), 1.3600 ($475m)

• AUD/USD: 0.7050 (AUD405m)

• USD/MXN: 17.38 ($532.2m)

• USD/KRW: 1440.00 ($410m), 1475.00 ($358.7m), 1510.00 ($300m)

• NZD/USD: 0.6000 (NZD380m)

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 Bearish

• Weekly VWAP Bullish

• Above 7330 Target 76300

• Below 7300 Target 7200

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 152

XAUUSD

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 4700 Target 4800

• Below 4500 Target 4386

BTCUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 79.5k Target 81k

• Below 79.5k Target 74k