Start of the Week previews activities across global financial markets, providing useful charts, links, data and a calendar of key events to help with more informed asset allocation and trading decisions.
Bob Savage
Time to Read: 9 minutes
There has been a binary quality to investments in May, as we turn the halfway mark for the month.
Flows suggest momentum beats value, earnings beat inflation, AI productivity beats oil shocks. Our iFlow Mood index highlights this split with a drop back to risk-off sentiment even as the Nasdaq and S&P 500 printed record highs for the week. The melt-up in risk taking over the last eight weeks has surprised investors and tests the connection between the outlook from consumers and companies to stock markets.
For investors, the next week divides into two sharply divergent outcomes. In one scenario, the AI investment boom continues to gain momentum with hopes for a less hawkish Fed, stable PMI reports and strong Nvidia outlook driving the IT sector and all risk assets higher. In the other, oil and inflation fears dominate with U.K. CPI, PMI input costs, a hawkish Fed, and more oil shocks driving rates higher, capping rate-sensitive shares and returning markets to the seasonal curse of selling in May and going away.
There’s a third path – uncertainty, in which AI continues to be rewarded even as doubts about global growth and inflation persist. This will extend concentration risks in IT and potential U.S. exceptionalism, but at the cost of higher rates, less breadth of recovery across global assets, and more volatility.
This week, policy, inflation, growth and AI will be key to determining the third-man factor for markets into the summer.
Does energy beat AI as an inflation hedge?
EXHIBIT #1: SEMICONDUCTOR VS. ENERGY EQUITY HOLDINGS AND ETF PRICES
Source: BNY, Bloomberg
Our take: Oil hedges energy shocks, stocks hedge higher nominal growth. Despite uncertainty over the size, extent and duration of the Iran conflict’s energy shock, the AI tech rally has outperformed because consensus sees the war ending by June. This puts investors on the first path, betting on higher real growth even as inflation and rates rise.
Forward look: Our holdings suggest investors see owning semiconductors beating energy as a hedge for the current environment. What is notable is that this barely changed during the peak of oil prices. The risk of the next few weeks centers on oil prices and the higher-for-longer tail changing how the AI theme holds. At some point, the data center costs will have to show up in LLM token pricing. Both oil and AI face demand destruction fears in the months ahead.
North America: FOMC minutes, consumer sentiment and inflation
EXHIBIT #2: U.S. MANUFACTURING AND SERVICES PMI
Source: BNY, S&P, Bloomberg
Our take: Last week’s hotter-than-expected U.S. CPI and PPI thrust inflation back to the forefront for many market participants. U.S. rate markets moved sharply, shifting the odds of a Fed rate hike from zero to over 50% by the end of the year. This week’s data, dominated by more second-tier releases, might not have the same impact.
Forward look: Highlights of the week are the U.S. Manufacturing and Services PMIs on Thursday and the University of Michigan Consumer Sentiment Index on Friday. On Tuesday, Canada’s CPI could add to the drumbeat of high global inflation.
Another highlight is the release of the April FOMC meeting minutes on Wednesday. Though they may prove somewhat stale given the subsequent data releases and Fed speaker docket, they will feature the four dissents, three of which advocated for slightly more hawkish statement language. The minutes will allow us to gauge the sentiment of a committee contending with the prospect of more embedded inflation.
We will focus particularly on the committee members who did not dissent. Were they sympathetic to the hawkish impulses of the three dissenters, or were they more comfortable with the status quo bias (at the time) toward the next move being a cut?
EMEA: Struggling for airtime as “G2” framework emerges
EXHIBIT #3: EU TRADE SURPLUS VS. CHINA AND U.S.
Source: BNY
Our take: As geopolitics continue to dominate the agenda in a data- and policy-light week, the European Union could be forgiven for appearing to struggle for relevance. Reports suggest that President Putin will be arriving in Beijing on the heels of President Trump, though there is very little input the bloc can provide in the Iran conflict, even as supply pressures build further. Even on the European continent, U.K. political noise is starting to drown out broader European proceedings. Data deterioration toward stagflation is the biggest risk factor, and preliminary May PMIs could point to further risks in this direction. The EU needs to urgently find a strategy for growth and competitiveness in the context of a shifting global governance framework.
One of the purported Trump–Xi summit deliverables was the establishment of a “board of trade.” While summit readouts have not provided anything concrete, this is one area where the U.S. and China could find considerable alignment in offering an alternative to the WTO and other Bretton Woods institutions in economic governance. Under this “G2” framework, the EU and other “middle powers” that are not considered part of a larger bloc could face considerable headwinds in maintaining access due to unilateral tariffs and other non-tariff barriers.
Furthermore, Europe’s export model is increasingly at risk in light of China’s rise up the global industrial value chain and fiercely competitive pricing power, and the emergence – and acceleration – of the U.S. as an energy exporter. The combined trade balance between the EU, against China and the U.S. has deteriorated sharply over the last 15 months (Exhibit 3) and stands to decline further if energy prices remain high and China starts to pass input cost increases on to export prices.
Meanwhile, prospects for fiscal impulse driving domestic demand are in doubt, as government resources are redirected toward mitigating the energy fallout.
These factors reinforce our view that additional tightening in financial conditions through the monetary channel is suboptimal policy, but there is very little sign the ECB adopts this view. The EUR might be holding its value relatively well, but there will be a cost to asset allocation over the medium term.
Forward look: Europe’s May PMIs are due ahead of holidays at the end of the month. Notable divergence between manufacturing and services is expected, with contraction expected in the latter category across most of the key economies. The risk is that any form of expansion in the manufacturing prints will likely come through the price channel. If order book surveys also point to contraction ahead, the margin pressure on European manufacturers amid higher costs and falling demand will further weigh on European asset allocation, as performance falls relative to the U.S. and AI-exposed APAC names.
But this doesn’t directly translate into EUR weakness yet. The Fed channel aside, iFlow indicates significant weakness in overall holdings, even among EUR-denominated investors, which suggests that their cross-border holdings currently have low hedge ratios, setting the stage for a potential recovery if the “price” is right through rate differentials and valuations.
We also expect more clarity on the political situation in the U.K., since there are several moving parts around the Labour Party’s current leadership election process. Clarity is needed urgently lest gilts and sterling face further pressure in a difficult economic environment.
APAC: China activity data, regional trade and PMIs
EXHIBIT #4: CHINA REAL ESTATE, INDUSTRIAL ACTIVITY AND FIXED ASSET INVESTMENT
Source: BNY, Bloomberg
Our take: Eyes this week will be on China’s April activity data – retail sales, industrial production and fixed asset investment – alongside property indicators and the jobless rate, which will offer a full snapshot of domestic demand and potential recovery in real estate. Japan’s Q1 GDP and April CPI are key for BOJ normalization expectations, while South Korea’s early May exports and Taiwan’s export orders provide timely reads on trade and the tech cycle.
Across ASEAN and India, Malaysia’s CPI and trade, Thailand’s Q1 GDP and exports, and Singapore’s final Q1 GDP and April NODX will gauge external demand and electronics momentum. Indonesia’s Q1 balance of payments and India’s PMI will be closely scrutinized to assess the impact from ongoing geopolitical uncertainties.
Australia’s labor market and PMI, alongside New Zealand’s retail sales and PPI, will round out the regional picture. Bank Indonesia is likely to maintain the status quo, with continued focus on FX stability. Overall, the data should signal whether trade and tech are stabilizing Asia’s growth or whether growth is still constrained by weak domestic demand and China’s property sector.
Forward look: The Trump–Xi summit improved global risk sentiment. Expectations for a global trade revival, alongside the ongoing semiconductor and electronics upcycle, are supportive for Asia. Taiwan and South Korea remain pivotal semiconductor suppliers, while ASEAN economies are deeply embedded in the global supply chain.
That said, several headwinds continue to weigh on regional assets: elevated oil prices and associated terms-of-trade pressures, a shift in U.S. rate expectations toward further tightening, persistent foreign equity outflows, and weakening fiscal dynamics in parts of the region.
In FX, we highlight a divergence between CNY and INR. We maintain high conviction in a gradual appreciation of the Chinese yuan into H2 2026, supported by sustained capital inflows and improving momentum in the high-tech sector. In contrast, the Indian rupee remains vulnerable to sharper depreciation. Recent macroprudential measures – including higher import duties on gold and silver and proposed tax incentives for foreign bond investment – have had limited market impact, suggesting weakening policy credibility. India’s status as a net commodity importer, combined with limited participation in the semiconductor cycle, further weighs on INR. Across APAC FX, we remain constructive on CNY, KRW, TWD, MYR, and SGD, while maintaining a bearish stance on INR, THB, PHP, and IDR.
The balance between AI-driven optimism and inflation-driven caution is becoming increasingly fragile as summer approaches. Investors are confronting a landscape where technology and productivity gains continue supporting equity concentration, particularly in the U.S. and semiconductor-linked Asia, while rising energy prices and persistent inflation pressures threaten to tighten financial conditions globally. The coming weeks will likely determine whether the current rally broadens into a durable risk-on environment or narrows further into a defensive concentration trade centered on AI leadership.
Key catalysts – including Nvidia earnings, global PMI releases, Fed communication, and developments surrounding Iran and energy markets – will shape expectations for growth, rates and liquidity. At the same time, volatility may remain elevated amid the growing divergence between regional economies, currencies and policy responses, even if headline equity indices stay resilient. For institutional investors, portfolio construction increasingly depends on balancing exposure to structural AI growth with protection against inflation persistence, policy uncertainty, and renewed cross-asset correlation risks.
Central bank decisions
Indonesia, Bank Indonesia (Wednesday, May 20): We expect Bank Indonesia (BI) to hold the policy rate at 4.75%, with a risk of a more hawkish tone. BI is likely to reiterate its commitment to “all-out” and “intensity”-based market interventions to stabilize sentiment. As of April, BI projected 2026 GDP growth at 4.9–5.7% and the current account balance at -1.3% to -0.5% of GDP.
Source: BNY
Source: BNY
