15 May 2026
Weekly Market View
A tipping point?
The ongoing blockade of the Hormuz strait is reaching a tipping point as the summer holiday season approaches. The closure has fuelled headline US inflation but broader inflationary effects have yet to materialise.
The Fed, under incoming Chair Kevin Warsh, is likely to keep policy rates steady as long as long-term inflation estimates stay anchored.
A US-China joint push following the Trump-Xi meeting could potentially lift the strait blockade, lowering oil prices, bond yields and the USD.
That would help sustain the rally in risk assets, particularly China and India equities which have missed this year’s rally in Asia. Emerging Market bonds and AUD bonds are also likely to benefit.
Any prolonged strait blockade is a risk to our constructive outlook. We continue to hedge stagflation risks through US inflation-linked bonds, gold and alternative assets.
Bullish Hang Seng Tech index: Reasonable valuations and improving growth visibility
Bullish US inflation-protected bonds: hedge against rising inflation risks
Bullish AUD/JPY: AUD to benefit from improving commodity and China outlook
Charts of the week: Getting hotter
Higher oil prices are fuelling headline inflation and bond yields, but core consumer inflation remains relatively subdued
US headline and core consumer and producer price inflation
Correlation between US bond yield and oil, equities
Source: Bloomberg, Standard Chartered
Editorial
Strategy summary: The ongoing blockade of the Hormuz strait is reaching a tipping point as the summer holiday season approaches. The closure has fuelled headline US inflation but broader inflationary effects have yet to materialise. The Fed, under incoming Chair Kevin Warsh, is likely to keep policy rates steady as long as long-term inflation estimates stay anchored.
A US-China joint push following the Trump-Xi meeting could potentially lift the strait blockade, lowering oil prices, bond yields and the USD. That would help sustain the rally in risk assets, particularly China and India equities which have missed this year’s rally in Asia. Emerging Market bonds and AUD bonds are also likely to benefit. A prolonged strait blockade is a risk to our constructive outlook. We continue to hedge stagflation risks through US inflation-linked bonds, gold and alternative assets.
Still pro-risk but avoid concentration: Equity markets have continued their rally, driven by optimism regarding improved US-China relations and strong earnings fundamentals. While the medium-term outlook remains constructive for risk assets, US equity market investor positioning is now less attractive than a month ago. Hence, we remain positioned to navigate volatility by minimising concentration risks. Meanwhile, firms with strong pricing power are expected to outperform if inflation persists. Broadening exposure to technology, especially internet industries, remains a preferred investment strategy.
Hot US inflation, resilient jobs: US inflation accelerated sharply in April due to higher energy costs. Despite these increases, secondary inflationary effects remain limited for now. Meanwhile, the US job market has rebounded from last year’s downturn, with job creation stabilising the unemployment rate slightly above the Fed’s long-run equilibrium. The resilience of consumer spending, aided by households dipping into savings, precautionary business purchases, wealth effect from booming equity markets, a US tax refund windfall, and an AI-driven investment boom, have supported growth. Yet these supports may fade if energy costs climb higher as inventories dwindle.
Not enough to move the Fed: Against this backdrop, the Fed is likely to keep interest rates steady. The bar for a rate hike is high; only a loss of confidence in long-term inflation expectations or an acceleration in wage growth would likely prompt action. Conversely, if the delayed effects of the oil shock undermine growth, the Fed may resort to cutting rates later in the year. With investors holding short positions in bonds, the upside for US bond yields and the dollar seems limited.
A breakthrough in Beijing? The Trump-Xi summit has the potential to lift the blockade. Both leaders have agreed that the Hormuz strait “must remain open”, with China’s leverage over Iran, being its biggest oil customer, a key factor. Should China act on this pledge, shipping through Hormuz could resume in weeks. Such a development would lower oil prices and relax global financial conditions, sustaining the rally in risk assets.
Risk of prolonged blockade. Any persistence of the Hormuz blockade remains a risk to our constructive outlook. Should the impasse continue into the peak summer driving and travel season, global oil inventories, bolstered thus far by elevated reserves and strategic stockpile releases, are likely to decline sharply. This would lead to upward pressure on oil prices and heightened economic strain. We therefore continue to hedge against stagflation risks through gold and alternative assets.
Opportunity in UK bonds? UK long-term government bond yields have surged to their highest in decades as Prime Minister Starmer faces challenges to his leadership after wide-ranging local election losses. Even with a left-wing Labour replacement, any stimulus is likely to be funded by taxes, not borrowing, likely easing fiscal concerns. Markets have already priced almost 70bps of BoE rate hikes over the next 12 months because of the energy shock, leaving little scope for hawkish policy surprises. Meanwhile, the Gilt-Bund spread, exceeding 2 percentage points, appears excessively wide. Thus, a further UK bond selloff if Starmer departs could present opportunities to add exposure. We are watching this space closely.
— Rajat Bhattacharya
The weekly macro balance sheet
Our weekly net assessment: On balance, we see the past week’s data and policy as neutral for risk assets in the near-term
(+) factors: Resilient US job market, Trump-Xi Summit
(-) factors: Rising US inflation; US-Iran peace talks deadlocked
US non-farm payrolls rose more than expected in April, while the unemployment rate held steady at 4.3%, reflecting a labour market near equilibrium
US non-farm payrolls, unemployment rate and underemployment rate
Euro area growth expectations remained weak despite a marginal recovery in May
Euro area and Germany ZEW survey of growth expectations
China’s deflation pressures have eased, primarily due to a surge in imported energy costs
China’s consumer and producer price inflation
Top client questions
What are the market implications of the Trump-Xi summit?
Our view: We believe the Trump-Xi summit will be positive for risk assets if it signals greater China involvement in Middle East conflict de-escalation. USD/CNH downside risk remains, which would benefit commodity currencies, such as the Australian dollar (AUD).
Rationale: US President Trump and Chinese President Xi began a two-day summit in Beijing on 14 May, after Trump arrived in China on a 13-15 May state visit. The US and China are expected to launch a ‘Board of Trade’ mechanism, with each side potentially identifying USD 30bn worth of goods for tariff reductions – a development that, if confirmed, would be modestly supportive of risk assets.
The most significant wildcard for risk assets is the ongoing Middle East conflict. Any signs of progress, diplomatic breakthroughs or formal agreements regarding conflict de-escalation reached at this summit, with China playing a more active diplomatic role in pressuring Tehran, would be pivotal. US Secretary of State Rubio has explicitly urged China to help reopen the Strait of Hormuz, underscoring this as a live negotiating point.
In fixed income, we believe any positive developments towards conflict de-escalation could trigger a relief rally in US Treasuries and Emerging Market (EM) local currency (LCY) bonds, along with some tightening of yield premiums more broadly. This is because oil prices could fall sharply, easing inflation pressures and reducing the geopolitical risk premium embedded in rates.
Meanwhile, the USD/CNH currency pair is facing continued downward pressure, largely due to the People’s Bank of China (PBoC) consistently setting the yuan midpoint at stronger levels around 6.84, particularly in the lead-up to and during the Trump-Xi summit. This approach highlights the Chinese authorities’ commitment to ensuring currency stability, which bolsters investor confidence in the yuan. We expect USD/CNH to remain in a modestly bearish trend, with the next support at 6.75, reflecting the broader strength of the Chinese yuan.
This supportive environment for the yuan has also had a positive impact on commodity-linked currencies, particularly the AUD. We continue to see room for AUD/USD to rise further, driven by Australia’s trade with China and favourable macroeconomic conditions. Immediate resistance is at 0.74. However, we see long AUD/JPY as a more attractive trading opportunity, with the pair in an upward channel since April 2025. We expect it to approach the 116 level in the coming weeks.
— Ray Heung, Senior Investment Strategist
— Iris Yuen, Investment Strategist
Bond yields declined as the news of the first US-Iran ceasefire agreement broke in early April
US 10-year government bond yield, Bloomberg EM local currency government bond index yield, US Investment-grade (IG) corporate bond index yield
The Chinese yuan is strengthening as the PBoC lowers USD/CNH fixing
USD/CNH and PBoC fixing rate
Top client questions (cont’d)
How does the latest US consumer inflation data impact your view on US Government Bond yields?
Our view: We expect the firmer US consumer inflation print to maintain near-term upward pressure on the 10-year US Government Bond yield.
Rationale: The higher-than-expected US consumer inflation in April (3.8% y/y) suggests the market will scale back expectations for near-term Fed easing, and at the margin, revive concerns about further tightening.
Nevertheless, the latest inflation rise is not broad-based. Much of the upside stemmed from energy, food, airfares and a one-off shelter distortion. While core goods inflation was flat, wage growth remains contained, and long-term inflation expectations remain anchored.
As a result, we view the strong headline consumer inflation data as likely to push the 10-year Government Bond yield higher initially, with the yield potentially reaching resistance at around 4.5%. If the pressure persists, it could test the next resistance level at around 4.6%, a level last seen in May 2025. Our three-month estimated range for the 10-year US Government Bond yield of 4.25-4.5% remains intact, but bouts of inflation pressure are expected to lead to a temporary breach of this range.
— Ray Heung, Senior Investment Strategist
We expect the US 10-year government bond yield to stay in the 4.25-4.5% range in the near term
US 10-year government bond yield
Do you believe incoming Fed Chair Kevin Warsh will steer market expectations away from a neutral Fed stance?
Our view: We believe Warsh is unlikely to steer the Fed away from its neutral stance in the near term.
Rationale: The current economic backdrop is not conducive to a dovish Fed pivot, especially given that the latest US consumer inflation reading remains elevated at 3.8% y/y – a level not seen since 2023.
In an April 2026 CNBC interview, Trump said he would be “disappointed” if incoming Fed Chair Warsh did not cut rates. However, we expect Warsh to prioritise inflation credibility over accommodation. In addition, he is expected to rely less on balance sheet tools, which will further constrain the room to ease policy, particularly in the early stages of his tenure as Fed Chair.
That said, Warsh believes in the disinflationary benefits of AI-driven productivity gains. As a result, we think the odds of a shift away from this neutral stance could rise if the Middle East conflict subsides and US labour market weakness becomes more evident in H2 2026.
— Ray Heung, Senior Investment Strategist
The market has been expecting a Fed rate hold since the start of the Middle East conflict
Market-implied number of Fed funds rate cuts/hikes as of December 2026
Top client questions (cont’d)
Would the planned mega US initial public offerings (IPO) in H2 2026 challenge your positive stance on US equities?
Our view: We remain positive on US equities, driven by solid earnings growth, and we do not expect major equity offerings to derail this positive trend.
Rationale: Media reports suggest major US equity offerings may emerge in H2 2026 from the technology sector, driven by rapid AI growth, and from the industrial sector, fuelled by aerospace and space exploration. These offerings could raise concerns that fund managers might have to sell down existing holdings to participate in the new equity offerings, potentially triggering market weakness.
While this could cause short-term volatility, we expect the primary driver for US equities to be earnings growth, on which we remain positive. Consensus expectations are for S&P500 earnings to grow robustly by 24% in 2026 and 14.9% in 2027 (per LSEG I/B/E/S). Over time, earnings growth can fund share buybacks – which provide fund managers further capital to deploy directly. Earnings growth also indirectly support the stock market as companies reinvest their earnings to fund growth and individuals see rising income and savings. Indeed, it is more likely that major equity offerings are the result of sustained positive equity market sentiment.
— Fook Hien Yap, Senior Investment Strategist
US equity offerings have been trending higher since 2022, along with a rise in the S&P500 Index
Global and US equity offerings (in USD millions) and the S&P500 Index
What are the key takeaways from major Chinese technology companies’ earnings?
Our view: We maintain our bullish view on Hang Seng Technology Index (HSTECH). Reasonable valuations and improving growth visibility provide scope to increase exposure.
Rationale: China’s tech sector delivered strong Q1 2026 earnings, reinforcing AI as the dominant driver. According to Bloomberg, as of 14 May, aggregate earnings per share growth for the IT sector more than doubled. AI adoption broadened beyond IT, particularly into consumer discretionary (eg: EVs, e-commerce)and communication services (eg: gaming), which recorded positive revenue growth.
Multiple catalysts underpin our expectations of further upside: 1) Monetisation inflection: Early revenue traction among immediate AI beneficiaries, including enterprise software and advertising/marketing. 2) Capex expansion: Rising investments in segments such as semiconductors and energy infrastructure support the supply build-out to meet commercial AI demand. 3) Macro support: Stabilising retail sales and elevated oil prices have supported profitability in select consumer discretionary segments, such as EVs. HSTECH trades at 19.3x 12-month forward price-to-earnings (P/E) ratio – below its five-year average – offering an attractive entry point.
— Michelle Kam, CFA, Investment Strategist
Valuations for the Hang Seng Tech index remain reasonable, providing opportunities to add exposure
12-month forward P/E ratio for the Hang Seng Technology index
Market performance summary*
*Performance in USD terms unless otherwise stated, 2026 YTD performance from 31 December 2025 to 14 May 2026; 1-week period: 7 May 2026 to 14 May 2026
Our 12-month asset class views at a glance
Economic and market calendar
The S&P500 has next interim resistance at 7,711
Investor diversity has normalised across asset classes
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As a Professional Client you will not be given the higher retail client protection and compensation rights and if you use your right to be classified as a Retail Client we will be unable to provide financial services and products to you as we do not hold the required license to undertake such activities. For Islamic transactions, we are acting under the supervision of our Shariah Supervisory Committee. Relevant information on our Shariah Supervisory Committee is currently available on the Standard Chartered Bank website in the Islamic banking section. For residents of the UAE – Standard Chartered UAE (“SC UAE”) is licensed by the Central Bank of the U.A.E. SC UAE is licensed by Securities and Commodities Authority to practice Promotion Activity. SC UAE does not provide financial analysis or consultation services in or into the UAE within the meaning of UAE Securities and Commodities Authority Decision No. 48/r of 2008 concerning financial consultation and financial analysis. Uganda: Our Investment products and services are distributed by Standard Chartered Bank Uganda Limited, which is licensed by the Capital Markets Authority as an investment adviser. United Kingdom: In the UK, Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. This communication has been approved by Standard Chartered Bank for the purposes of Section 21 (2) (b) of the United Kingdom’s Financial Services and Markets Act 2000 (“FSMA”) as amended in 2010 and 2012 only. Standard Chartered Bank (trading as Standard Chartered Private Bank) is also an authorised financial services provider (license number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002. The Materials have not been prepared in accordance with UK legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Vietnam: This document is being distributed in Vietnam by, and is attributable to, Standard Chartered Bank (Vietnam) Limited which is mainly regulated by State Bank of Vietnam (SBV). Recipients in Vietnam should contact Standard Chartered Bank (Vietnam) Limited for any queries regarding any content of this document. Zambia: This document is distributed by Standard Chartered Bank Zambia Plc, a company incorporated in Zambia and registered as a commercial bank and licensed by the Bank of Zambia under the Banking and Financial Services Act Chapter 387 of the Laws of Zambia.