The week of May 12–16 was defined by a sharp resurgence in inflation anxiety, as higher-than-expected US price data collided with the ongoing energy shock emanating from the Strait of Hormuz crisis. With Brent crude pushing past $109 a barrel and Treasury yields spiking to their highest levels in over a year, investors were forced to recalibrate their assumptions about the path of monetary policy. Equities managed a seventh consecutive weekly gain in the US, led by energy shares, but the mood soured on Friday as bond markets sent a clear warning that the cost of the Iran conflict is filtering into the real economy.

Equities

US equities eked out a positive week despite a bruising Friday session. The S&P 500 closed near 7,409, extending its winning streak to seven weeks, though it shed 1.2% on the final day of trading as Treasury yields surged. The Nasdaq Composite gave back 1.5% on Friday after touching fresh highs midweek, with profit-taking concentrated in technology names — Nvidia fell 4.4% on the day. Energy was the standout sector, buoyed by the relentless rise in crude prices.

In Europe, the picture was less forgiving. The STOXX 600 declined 0.85% over the week, weighed down by stalled US-Iran peace talks and their implications for the continent's energy import bill. Germany's DAX fell 1.6% and France's CAC 40 dropped nearly 2%, reflecting the particular sensitivity of European manufacturers to elevated input costs. Asian markets were similarly under pressure. Japan's Nikkei 225 lost 2.0% to close at 61,409, hurt by the combination of rising oil import costs and heightened caution after President Xi warned during talks with President Trump in Beijing that Taiwan could become a source of friction between the two powers. The Hang Seng was broadly flat, while MSCI Emerging Markets remained in positive territory for the month.

Rates & Credit

The fixed-income selloff was the week's most consequential market event. The US 10-year Treasury yield jumped roughly 21 basis points to 4.59%, reaching its highest level since early 2025, after CPI data showed consumer prices rising 3.8% year-on-year — the sharpest increase since May 2023. The producer price index added fuel to the fire with a 1.4% monthly gain, the largest since March 2022, driven overwhelmingly by energy costs. German Bund yields climbed above 3.1%, their highest since 2011, as markets began pricing in the risk that the European Central Bank may need to pause, or even reverse, its easing cycle. Investment-grade credit spreads held relatively steady near 80 basis points, though high-yield spreads at roughly 285 basis points remain well below their long-term average.

Foreign Exchange

The US dollar strengthened across the board, supported by the hawkish shift in rate expectations. EUR/USD slipped to the 1.1615–1.1620 band, a five-week low, as the divergence between Fed and ECB policy outlooks widened. GBP/USD held above 1.3600 but struggled to gain traction amid broader dollar strength. USD/JPY was volatile, closing near 155 after the yen weakened on oil-import concerns, though expectations of a Bank of Japan rate hike as early as June provided a floor. The Swiss franc firmed modestly, with USD/CHF dipping toward 0.78 as safe-haven flows persisted. Among emerging-market currencies, the Mexican peso and Brazilian real both came under pressure from the combination of a stronger dollar and elevated commodity-driven inflation.

Commodities & Gold

Energy markets remained the epicenter of volatility. WTI crude surged 11% on the week to near $106 per barrel, while Brent added 8.1% to close above $109, as the Strait of Hormuz remained effectively closed to tanker traffic. The International Energy Agency has characterized the disruption as the largest supply shock in the history of global oil markets. Gold, perhaps counterintuitively, declined to $4,483 per troy ounce — its lowest since March — as rising real yields and a stronger dollar reduced the appeal of non-yielding assets. Copper retreated sharply, falling nearly 5% to $6.25 per pound on profit-taking after its recent run to record highs, though the long-term demand story tied to AI infrastructure and the energy transition remains intact.

The Week Ahead

The week ahead brings several catalysts. Chinese industrial production, retail sales, and unemployment data are due Monday. In the US, housing starts (Tuesday), initial jobless claims and the Philadelphia Fed manufacturing survey (Thursday), and the final Michigan consumer sentiment reading (Friday) will be closely watched for signs of economic softening. No major central bank meetings are scheduled, but markets will parse any comments from Bank of England speakers and continue to monitor developments in the Middle East, where the trajectory of oil prices remains the single most important variable for global asset allocation.