May continued the pattern set in April as geopolitical uncertainty in the Middle East remained a dominant theme. Equity markets largely ignored the geopolitical noise, instead focusing on strong earnings and the ongoing AI boom, with technology leading global gains. Volatility remained surprisingly contained despite elevated geopolitical risk.

Interest rate markets remained on a knife edge as investors attempted to digest the future direction of monetary policy. Inflation expectations remained elevated while economic growth forecasts softened, keeping central banks cautious and several positioned for rate hikes. Mid‑month saw a sharp surge in global bond yields, and although yields eased toward month‑end, the episode highlighted how sensitive markets remain to fiscal signals and inflation dynamics.

Gold prices have stagnated around USD $4,500 an ounce despite the uncertain environment. Oil prices remained elevated but ended below the key USD $100 a barrel level as hopes grew for a ceasefire and a reopening of the Strait of Hormuz.

In the US, a new Federal Reserve governor stepped in at a pivotal moment. Both the Personal Consumption Expenditures Index (the Fed’s preferred inflation gauge) and the Consumer Price Index printed above target at 3.8%. Against this backdrop, consumer sentiment moved lower. The cost of the ongoing conflict continues to weigh on the US fiscal position, with investors increasingly focused on rising government debt levels.

In the UK, local elections saw Labour (led by Keir Starmer) experience significant losses, increasing political uncertainty and pressure on Starmer’s leadership. Economic data was mixed, with inflation easing to 2.8% while growth surprised to the upside. Energy vulnerabilities remained a key headwind to the outlook.

Back here at home in New Zealand two announcements late in the month of May were the focus of people’s attention. Firstly, the Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Statement resulting in the OCR being held at 2.25% but delivered hawkish commentary following a split vote. Secondly the Budget showed spending restraint in an election year, with a focus on rebuilding fiscal buffers after several years of elevated deficits. New Zealand’s return to surplus is now forecast a year earlier, though this remains contingent on lower energy prices and a stabilisation in global demand. Export performance and tourism flows will be key to achieving this fiscal trajectory.

Equity markets showed resilience to advance in the face of elevated yields and geopolitical risk. The US S&P 500 rose 5.2%, while the NASDAQ gained 8.4%. The NZX 50 followed with a 2.6% rise, and the UK FTSE 100 returned 0.3%.

Australia’s ASX 200 also moved higher, up 0.8%, as investors looked through another early‑month rate hike from the Reserve Bank of Australia. Inflation remains above 4% and continues to challenge policymakers, yet steady labour‑market conditions and resilient corporate earnings helped underpin equity performance.