May saw global financial markets continue their recovery, building on improved sentiment observed in April as investors took comfort from tentative signs of easing geopolitical tensions in the Middle East and a solid first-quarter corporate earnings season. Equity markets advanced, led once again by the US. The technology-heavy Nasdaq rose by 8.4% while the S&P 500 advanced by 5.3%, supported by strong earnings results, particularly within the technology sector. European markets also moved higher, with the Euro STOXX 50 rising 3.9%, and the FTSE 100 posting a more modest gain of 0.7%. Fixed income markets were more mixed as investors balanced persistent inflation pressures against changing expectations around central bank policy. In the US, higher-than-expected inflation data pushed the 10-year Treasury yield up by 6.5 basis points, reflecting reduced expectations for near-term rate cuts. In contrast, UK government bonds performed more strongly, with the 10-year Gilt yield falling by 20 basis points, supported by softer inflation data and signs of weakening in the domestic labour market. In commodities, energy prices and industrial metals diverged. Brent crude oil fell by 12.9%, as the prospect of a US-Iran agreement eased concerns around supply disruptions in the Strait of Hormuz. By contrast, copper rose by 7.1%, reflecting strong manufacturing demand. In currency markets, sterling depreciated slightly by 1.1% against the US dollar and 0.5% against the euro.

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