The yield on the US 10-year Treasury note rose 10bps to 4.6% on Friday, reaching a fresh one-year high as concerns over war-driven inflation intensified. The situation in the Middle East remains fragile and far from resolved, with US President Trump describing the first sentence of Iran’s latest proposal as “unacceptable”. As a result, oil prices continued to climb amid fears of disruptions to global supply, with the Strait of Hormuz still closed. Meanwhile, a summit between President Trump and Chinese President Xi ended without any major agreements, including any indication that Beijing would help resolve the conflict. Both the CPI and PPI reports released this week suggested that the energy shock is pushing US inflation higher. Traders are now fully pricing in one rate hike by the Fed in March next year, with more than a 50% chance that interest rates will rise before the end of 2026.

Exchanges of conciliatory and escalatory rhetoric between the US and Iran will continue to shape markets as their conflict still has no end in sight. Despite the macroeconomic headwinds, global equities were supported by strong guidances for AI infrastructure companies, facing their biggest test next week with Nvidia earnings. At the same time, the Fed will release minutes from its latest meeting, which saw three dissents. For economic data, the US spotlight will be in leading indicators with PMIs, regional Fed indices, and the UMich consumer sentiment survey, in addition to housing price data. Leading indicators are also the focus in Europe with GfK and Ifo surveys in Germany, while flash PMIs are featured in the Eurozone. In the UK, inflation, unemployment, and retail sales will be featured. China will join the UK in its data-dump week, including industrial output, retail sales, unemployment, housing prices, and fixed investment. In Japan, the first-quarter GDP is due.

Russia’s economy contracted by 0.2% year-on-year in the first quarter of 2026, marking its first annual decline in three years and reversing from a 1% expansion in the previous quarter. The data came just days after the Russian government downgraded its full-year GDP growth forecast to 0.4% from an earlier estimate of 1.3%. The downturn occurred despite a sharp rise in the prices of key Russian exports, including oil, natural gas, coal, industrial metals, and grains, following disruptions to Middle Eastern shipping routes caused by the war. Economic activity also weakened even as the Duma ramped up deficit spending in an effort to support an economy still constrained by Western sanctions, which continue to isolate Russian producers and financial institutions from international markets. Meanwhile, Russia’s energy revenues fell by 40% year-on-year in the 12 months through April, while interest rates set by the Bank of Russia are expected to remain elevated.

Industrial production in the United States increased 0.7% in April 2026, the most in 14 months and more than market expectations for a 0.3% gain, after decreasing 0.3% in March. Manufacturing output, which accounts for about 78% of total industrial production, rose 0.6%, beating forecasts of 0.2%. Manufacturing output, excluding motor vehicles and parts, increased by 0.3%. At the same time, utilities output increased 1.9%, with gains in both electric and natural gas utilities. On the other hand, mining output edged down 0.1%. Capacity utilization moved up to 76.1%, a rate that is 3.3 percentage points below its long-run (1972–2025) average.

WTI crude oil futures climbed more than 4.5% to near $106 per barrel on Friday and booked a weekly gain of 11% as the Strait of Hormuz remained effectively closed, keeping global supply concerns elevated. Efforts to end the conflict remain stalled, with disruptions continuing to impact energy markets and fuel inflation fears. President Donald Trump delivered mixed messages on the situation, first saying the US did not need the Strait open before later stating alongside Chinese President Xi Jinping that “we want the straits open.” The International Energy Agency warned this week that the oil market could remain severely undersupplied until October even if fighting ends next month. Oil inventories continue to tighten, while tanker traffic through Hormuz remains extremely limited, with only a small number of vessels managing to leave the Persian Gulf since the conflict began.

The NY Empire State Manufacturing Index in the US unexpectedly increased to 19.6 in May 2026 from 11 in April, above forecasts of 7.5. The reading showed that New York State manufacturing activity grew at its fastest pace in over four years. New orders (22.7 vs 19.3) and shipments (18.9 vs 20.2) increased considerably for the second consecutive month and unfilled orders rose (4.9 vs 9.1). Also, employment levels (8.3 vs 9.8) and the average workweek (11.5 vs 13.7) both continued to increase. Meanwhile, delivery times lengthened substantially (20.4 vs 12.1), and supply availability worsened somewhat (-10.7 vs -10.1). The pace of input price increases (62.6 vs 51) and selling price increases (31.8 vs 21.8) picked up sharply. Looking ahead, firms grew more optimistic about the outlook (33.5 vs 19.6). Employment is expected to grow while capital spending plans remained modest. Prices are expected to continue to rise, and supply availability is expected to worsen.