Even though the war in the Middle East continued to dominate headlines last week, risk assets moved higher. Strong corporate earnings and easing fears of an imminent Federal Reserve rate hike helped equities extend their April rally into May, pushing the S&P 500 to fresh record highs. Oil prices held above $110 per barrel amid ongoing supply disruptions through the Strait of Hormuz and persistent uncertainty around the conflict's resolution, yet markets appeared to find a fragile equilibrium between geopolitical anxiety and underlying economic resilience. Meanwhile, the Bank of Japan adopted a more hawkish tone, keeping rates on hold while intervening decisively to support the yen, adding a fresh layer of volatility to currency markets.

Equities

US stocks capped their strongest month since November 2020, with the S&P 500 gaining 0.9% over the week to close at a record 7,272 while the Nasdaq Composite rose 1.1% on continued data-centre capital expenditure momentum. With more than half of the index having reported, earnings came in largely ahead of expectations, providing fundamental support beneath the geopolitical noise. Technology and communication services led the advance, while energy names consolidated after April's outsized gains. In Europe, the STOXX 600 extended its April gains—the index's best month since January 2025—buoyed by easing natural gas prices and solid industrial results.

Fixed Income

The US 10-year Treasury yield finished the week lower at 4.39%, as Friday's easing oil prices relieved some inflation pressure. Earlier in the week, the ISM Manufacturing prices component had surged to a four-year high, briefly pushing yields higher, but softer energy costs pulled them back. Germany's 10-year Bund yield rose to 3.10%, its highest level since 2011, after European Central Bank officials Nagel and Müller signalled potential tightening as early as June, citing entrenched price pressures from the energy shock. US high-yield spreads held steady near 283 basis points, a sign of continued confidence in corporate balance sheets despite the uncertain macro backdrop.

Forex

The dollar had a mixed week, with EUR/USD recovering to $1.17 and heading for a monthly gain of over 1% as hawkish ECB rhetoric supported the single currency. The standout move came in USD/JPY, where the BoJ intervened on Thursday, driving the pair down over 400 pips in a dramatic session that underscored Tokyo's discomfort with yen weakness. GBP/USD rallied alongside the euro, with sterling outperforming on relative rate expectations after the Bank of England held at 3.75%. The Swiss franc traded near 0.78 per dollar, with Swiss National Bank Chairman Schlegel reaffirming willingness to intervene via foreign currency purchases. Among emerging-market currencies, the Mexican peso held firm on carry appeal while the Chinese yuan weakened modestly amid trade uncertainty.

Commodities

Energy markets remained elevated, with Brent crude holding above $111 per barrel and WTI above $105, both posting a second consecutive weekly gain as Strait of Hormuz disruptions—responsible for roughly 35% of global seaborne crude trade—continued to restrict supply. Gold settled near $4,614 per ounce, off marginally on the week as the dollar's resilience capped safe-haven flows; the metal remains up over 42% year-on-year. Copper rose to $5.94 per pound, supported by structural demand from electrification and data-centre buildouts, though supply concerns grew after sulphur-shipping disruptions threatened Chilean refining capacity.

The Week Ahead

This week, investors will focus on the ISM Services PMI on Tuesday, which will offer a read on domestic resilience, while Friday's April payrolls report is the week's marquee event—consensus expects continued labour-market strength, but any softness could reignite rate-cut speculation. The Reserve Bank of Australia also meets on Tuesday, with markets watching for guidance on the inflation outlook given surging energy costs. China's services PMI on Wednesday and Eurozone retail sales on Thursday round out the data calendar. On the geopolitical front, developments around Iran and the Strait of Hormuz remain the dominant risk variable for energy prices and, by extension, the inflation outlook globally.