With a potential deal came hopes that the Strait of Hormuz would be able to reopen, pressuring oil prices. Indeed, for the week Brent crude declined 11%, resulting in a monthly drop of 19%, its worst performance since March 2020.
The renewed artificial intelligence momentum as well as company earnings were also supportive for US markets. Amongst notable stock movers was Dell, which advanced over 30% on Friday after raising its full-year profit and revenue forecasts. Overall, in the holiday shortened week all three major US indices notched gains and ended at fresh record closes. The S&P 500 rose 1.4%, logging its ninth consecutive gain, its best streak since December 2023. Meanwhile the Dow Jones Industrial Average was up 0.9% and the tech-heavy Nasdaq Composite jumped 2.4%. For the month of May the indices advanced 5.3%, 2.8% and 8.4% respectively. US Treasury yields declined on hopes of a US-Iran deal, with the 10-year yield ending at 4.44%.
The prospect of an extension to the Middle East ceasefire also benefited European equities, with the pan-European STOXX 600 posting a modest weekly gain. The index has now managed to recover all losses since the start of the conflict, closing in on its February high, and securing a 2.5% monthly gain. Most regional indices ended the week higher, although the UK FTSE 100 was 0.5% lower in a holiday shortened week. While there appeared to be progress in a de-escalation of tensions in the Middle East, the Russia-Ukraine relationship remained fraught. The week kicked off with a heavy bombardment of Kyiv and surrounding areas, prompting European defence stocks to gain. German and French government bond yields moved lower, with inflation remaining in those economies above the European Central Bank’s 2% target.
Japanese equities saw positive returns for the week, again boosted by developments in the Middle East. The Nikkei 225 advanced 4.7%, topping the 65,000 level for the first time, and the broader Topix also hit a new high and was up 1.7%. The indices also benefited from the AI enthusiasm. Another region where AI strength was a key driver was South Korea, where the Kospi gained 8% to a new record, extending May’s rally to over 28%. Nevertheless, gains were very concentrated around semiconductors, while the majority of sectors actually underperformed the index. A case in point, SK Hynix crossed the $1tr market cap mark during the week. Bucking the wider positive trend, Chinese markets were lower, with the Shanghai Composite dropping 1.1%. The mood was not helped by regulators cracking down on illegal cross-border securities trading. In addition, the latest economic data from China was mixed, pointing to an uneven economic recovery.