Steepening curves and stubborn optimism
Time is absolutely flying…June next week?! For markets this has often been a period where activity slows, folks take time out, and generally get into holiday mode. The old adage from the City of London “sell in May and go away” sounds incredibly dated from where I now sit looking at these screens. One might think that with continued tensions, uncertainty, and signs of inflation globally back on the upward, we might be positioning ourselves with caution. The reality is really quite different, with stocks continuing to flirt with all-time highs here in the US, and across several major jurisdictions rate cuts turning to hikes in just a few short months…if only it were all due to growth!
Macro
Promises made, promises broken? We are now in the fourth month of the Iranian conflict, and whilst there has been much stated publicly about diplomatic progress, actions also speak. Increased attacks, and more problematically, the lack of willingness around nuclear disarmament, makes it hard for me to believe that there is a near-term real end in sight. History can teach us many things. One of those is that whilst nobody seeks out prolonged combat, it can often be what you get. A nearer term resolution may well once again compromise what would have been deemed success at the beginning of all this.
The IMF recently updated us all on where they see the world going. Assuming conflict remains limited in both scope and time, global growth has been revised down to 3.1%, a 0.2% cut for 2026. The language though is more telling than the data: “Downside risks dominate the outlook”. Conflict is just one area to keep an eye on. Continued tension around trade and the productivity that AI may yet bring could weaken these figures further and “destabilize financial markets” (International Monetary Fund). The rise in public debt, much fuelled by rearmament, does at least boost output. Not the best driver I can think of.
Risk
Stocks? Gravity-defying! Despite all the background noise of geopolitical conflicts, stubborn inflation (which is definitely not a growth story), May decided to ignore the memo. We just saw a strong Q1 earnings season that helped push the S&P 500 to new records. US equities truly decided to rally through the first half of the month, seemingly buoyed by a holding US-Iran ceasefire and a broad Q1 beat: 84% of S&P 500 names beat on EPS and 81% on revenue. The Nasdaq even managed to string together a 13-day winning streak, its longest since 1992. When the dust settled, the S&P 500 finished the rolling month up roughly 4.8%, driven mostly by the usual suspects – tech, industrials, and materials. Energy, naturally, was the standout laggard (Trading Economics, Fortune).
Of course, the upside surprises were not without their own drama. Nvidia, the undisputed king of the AI trade, delivered blowout earnings – but the stock still slipped on the concept of "perfection priced in." The numbers were certainly immense: Q1 FY27 revenue hit $81.6bn (+85% YoY) and EPS reached $1.87 on 20 May, comfortably beating consensus. Yet, despite data-centre revenue nearly doubling (a staggering figure, I might add), shares dipped the very next day. Why? Because the print simply failed to clear an already-elevated bar. This, my friends, is the latest, most frustrating example of "buy the rumour, sell the news" in mega-cap AI (SEC S-1, TradingKey).
The Nikkei 225, determined not to be left out of the party, punched through the 65,000 level in May. This was mostly due to a multi-week rally led by SoftBank, which surged some 18% in a single session and added nearly 30% over two days on the mere hope that core portfolio companies like OpenAI and SB Energy were nearing US IPOs. It was, by all accounts, one of Japan's most extreme tech-led re-ratings in years, dragging broader Asian markets higher (CNBC).
SpaceX, which filed its S-1 for what would be the biggest IPO in history. Elon Musk is targeting a June 12th Nasdaq debut under the ticker "SPCX," seeking to raise up to $75bn at a gargantuan $~$1.75tn valuation. For context, this valuation is more than twice the size of Saudi Aramco’s 2019 record float, ranking its market cap behind only Apple and Nvidia. The S-1 itself reveals the current state of this enterprise: FY25 revenue was $18.7bn (a healthy 33% YoY increase), with Starlink contributing the lion's share at $11.4bn (61% of total revenue), resulting in an adjusted EBITDA of $6.6bn (Dealroom). Of course, the sheer scale of investment in space travel means the company also posted a GAAP net loss of $4.94bn in 2025, with another $4.28bn loss in Q1 2026. Predictably, the listing remains entirely unconventional, with Musk set to retain 42% equity and a staggering 85% voting control, all under the watchful eye of Goldman Sachs leading the book.
The wider IPO pipeline reveals a single, dominating theme: AI, and lots of it. The prospective class is a colossal $3tn pool of capital, with the 12 most-watched 2026 IPO candidates now representing $~$3.12tn of combined estimated value. More tellingly, AI and AI-adjacent names account for eight of those 12 deals and roughly 92% of that total value. Behind the launchpad that is SpaceX, the highest-profile candidates waiting in the queue include OpenAI (currently holding an $~$852bn last private mark based on $25bn ARR), Anthropic ($~$300bn target), Databricks (targeting Q3 2026 at $~$134bn), and the payment giant Revolut ($~$75bn). It seems we are witnessing a global repricing of the future, driven almost entirely by the promise – and expense – of artificial intelligence (AI Funding Tracker).
Credit
May was the month of normalisation in credit markets. Conflict? Now BAU. We saw the highest total volume of issuers, and across the broadest sectors and ratings since January. In one single day alone we saw an all-time record of 39 issuers price 47 tranches (Bloomberg). Pent-up demand and supply the most obvious factor here. Whilst risk premia remain thin, implying borrowers are healthy, the shift in rate expectations leading to steepening across all the majors, is leading to considerably higher nominal levels, effectively increasing the cost of borrowing all else being equal.
For now at least, those scary private credit headlines have taken a back seat. Perhaps we have turned a corner. Time will tell. The markets’ favourite bellwether at least, Blue Owl Capital, is a full 20% off the lows. Put differently, 62% off the highs of January ‘25 (Bloomberg).
EUR
The ECB left rates unchanged on April 30 (deposit 2.00%, unanimous), reiterating it is "not pre-committing to a particular rate path" and will operate "meeting-by-meeting." The statement acknowledged that "upside risks to inflation and downside risks to growth have intensified" – the same tension that has characterised ECB communication since March (ECB). As always, the market has a view. Currently that is for around 2.5 hikes (0.61%) for this year alone (Bloomberg:WIRP). The first 0.25% is expected next month, with the second full hike expected in September. As with much of the rest of the world, expectations do remain somewhat volatile, as evidenced by three full rate rises priced in for 2026 just last week (Bloomberg:WIRP).
One can understand why the trend remains up irrespective of size. April CPI came in at 3.00%, up 0.40% from the prior month, the main contributor being energy, with prices accelerating to 10.8% YoY. As a core input and stable in any and all baskets of goods, the sooner we are back to normality, the better. Core inflation, excluding energy, food, alcohol, and tobacco (aka the good stuff), did ease by 0.1% to a roughly on-target 2.2% (Eurostat). Europe remains import-driven, structural shifts not expected for years but certainly in the pipes and important in avoiding disruptive external shocks outside of their control.
Romania extended its lead as the bloc's biggest outlier at 9.5% (up from 9.0% in March), with Bulgaria (6.0%) and Croatia (5.4%) also elevated. The low end shifted lower still – Sweden fell to 0.5%, Denmark 1.2%, Czechia 2.1%. Among the major economies, Spain (3.5%) is running fastest, followed by Germany (2.9%), Italy (2.8%), and France (2.5%). (Eurostat)
According to the IMF, growth is expected to be below last year’s 1.4% at 1.1%, from their latest update in April (IMF).
GBP
The MPC voted 8-1 to hold the Bank Rate at 3.75% on 30 April, with Chief Economist Huw Pill breaking ranks to vote for a 25bps hike to 4.00%. Pill flagged that underlying inflation persistence, compounded by the Middle East energy shock, risked permanently embedding inflation expectations. A meaningful dissent given Pill's traditionally more centrist positioning (Bank of England). Markets had at one point priced as many as four hikes by year-end at the height of the energy shock. With ceasefires holding and global risk premiums easing, this has settled back to roughly 38bps priced for the remainder of 2026, with the 18 June MPC meeting essentially priced as a hold (just 2bps of tightening).
For what it’s worth, the house view (not advice) is for the Bank to hold steady to the end of the year. Unemployment at 5% is now at a five-year high, job vacancies also near a similar lull having again fallen in the February-April gauge (705,000) but for now at least, good news for those that are employed with total pay (which includes bonuses) rising 4.3%. At some point, something may need to give (Office for National Statistics).
Q1 GDP grew 0.6% (vs +0.2% in Q4 2025), with services the main driver and wholesale & retail trade the largest sub-contributor. March monthly GDP came in at +0.3%, following +0.4% in February. The IMF's April 2026 WEO cut UK growth to 0.8% for 2026 (with CPI averaging 3.2%), citing the energy shock and a slower pace of monetary easing (IMF). The OECD also moved to 0.8% (from 1.3%) with inflation at 3.2%. Both have the UK matching the eurozone's sluggish trajectory rather than leading G7 growth as the IMF previously projected (OECD).
Last month's note flagged the risk of a "UK premium" returning to gilt yields on domestic political instability – that risk crystallised this month in dramatic fashion. A disastrous set of local election results triggered an open Labour leadership crisis, with calls for Starmer's resignation from nearly 100 Labour MPs and challenges emerging from Streeting, Rayner, and most pointedly Andy Burnham (Greater Manchester Mayor), who is contesting an 18 June by-election in Makerfield to secure the seat needed to mount a formal challenge. What does this mean in numbers though? The 30y gilt spiked to 5.86% on 15 May – its highest since 1998 – with the 10y briefly trading above 5.13% (highest since July 2008).
USD
As much as there is much political will behind lowering rates, as the days and weeks go by the new reality is that inflation is back on the upward march. As the ball dropped for 2026 so were projected rates by 0.57% by year-end, to be precise. It’s been quite the flip from cut now to hike, to the tune of around a 60% of a 0.25 move (Bloomberg:WIRP). Now the good news here is, there is real growth, supportive of and more able to sustain borrowing costs rising a little to stave off the latest round of price shocks. The IMF in its latest release sees the Stars and Stripes clocking 2.3% GDP growth for 2026 all said and done.
It could well be needed and the reason for reversion clear. CPI accelerated to 3.8% year-on-year for April (Bureau of Labor Statistics). When looking into the detail, some of the figures are actually frightening. Gasoline up 28.4% (cars here are big, this affects many pockets) and fuel oil up 54.3%. One can see why the current administration is keen to administer policies that force those in AI and respective data centres to become independent of the grid, or at least help pay for all that additional demand. Sadly though, the buck will inevitably stop at all of us consumers…it all feels hard to escape.
Unemployment has remained steady with little hiring and firing. Anecdotally, when speaking to folks in the business of hiring within professional services, there is increased adoption and efficiency, a broad upskilling, but perhaps a lack of investment in those inexperienced folk who should really be in and gaining experience.
So what?
The market remains somewhat fickle, with headlines continuing to fuel expectation more so than usual given the higher-stakes games and broader disruption out there. There are always winners and losers. Whilst our view (not advice!) has been that rates would remain higher for longer, the latest moves are pushing beyond even our expectations given the unpredictable circumstances we now find ourselves in. For those that care about cash, these elevated and steepening curves can go as quickly as they come. Observations here have been that folks are taking advantage of premia on offer without need for compromise on risk.
*TreasurySpring’s blogs and commentaries are provided for general information purposes only, and do not constitute legal, investment or other advice.