Daily Market Outlook, May 28, 2026 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Oil Shock Tests the Soft-Landing Trade

Markets have flipped back into risk-off mode as renewed violence in the Middle East punctures hopes for a quick diplomatic resolution. The MSCI All Country World Index slipped 0.4% from its recent record, while Asian equities fell 2%, ending a five-day winning streak that had been powered by peace optimism and the AI-led tech rally. Futures point to further weakness in both the US and Europe, with investors again forced to price the conflict as an inflation shock rather than just a geopolitical headline. Oil is the main transmission channel. Brent jumped almost 3.7% to around $98/bbl after US airstrikes on an Iranian military site and fresh sanctions aimed at limiting Iran’s profits from Strait of Hormuz shipping. Washington framed the strikes as defensive, but Iran’s retaliation against a US airbase has reduced confidence that negotiations are close to delivering a durable ceasefire. Trump’s dissatisfaction with the talks, and his warning that no single country will dominate the Strait, underscore why the conflict has dragged into its fourth month. The market’s problem is not only the level of oil but also the volatility: each reversal makes it harder for investors and central banks to treat the shock as temporary.

The cross-asset response is consistent with stagflation risk. The Dollar strengthened as a safe haven, especially given its historical support during Middle East stress. Treasuries sold off as the inflation impulse from higher oil outweighed the usual flight-to-quality bid, pushing the 10yr yield up 4bps to 4.53%. Gold dropped 1.9% to $4,370/oz, and Bitcoin hit a six-week low, suggesting liquidation pressure and Dollar strength are dominating traditional haven behaviour. Equities are being squeezed from both sides: earnings sentiment is still supported by AI and resilient demand, but higher energy and higher yields threaten margins and valuations. Fed communication is adding to that pressure. Vice Chair Philip Jefferson still expects inflation to ease later this year as tariff and energy effects fade, but he acknowledged that risks remain skewed to the upside. Governor Lisa Cook was more direct, saying inflation is moving in the wrong direction and that she would support raising rates if the trend persists. That is the key point for markets: even if the Fed’s base case is still that the oil and tariff impulse fades, officials are becoming less willing to look through repeated price shocks without evidence that inflation expectations remain anchored.

The Richmond Fed manufacturing survey completes the May regional data and shows why the Fed’s job is difficult. Activity dipped slightly from last month, but the sector still looks better positioned than it did late last year. Orders, capital expenditure expectations and employment expectations have improved, suggesting firms are not behaving as though the conflict will permanently derail demand. But the price components are flashing red. Prices paid have jumped into the elevated territory last seen during the previous inflation spike, clearly reflecting the rise in energy costs. Firms have raised selling prices too, but more cautiously, implying margin compression rather than full pass-through so far. That matters because it supports two competing interpretations. The benign version is that firms see the conflict as temporary and are prepared to absorb some cost pressure while looking through the shock. The less benign version is that expectations are becoming too hopeful and that if energy costs remain high, today’s margin compression becomes tomorrow’s price pass-through. In that scenario, the Fed’s upside inflation risks become more than just a caveat.

Next week’s calendar is heavier and will test the soft-landing narrative. Final May PMIs are due across major economies, with manufacturing on Monday and services and composite releases on Wednesday. In the Eurozone, markets will focus on money supply, unemployment, ECB inflation expectations, preliminary May CPI, PPI, retail sales and the third estimate of Q1 GDP. The CPI data will be especially important because Europe is highly exposed to energy-price swings, and the ECB will soon enter its quiet period after Lagarde speaks on Thursday. In the UK, the data schedule is lighter but still useful. Money and credit figures on Tuesday will show whether tighter financial conditions are weighing on borrowing, while Friday’s BoE Decision Maker Panel will be watched for the divergence between inflation expectations and wage intentions. That is the key domestic policy issue: headline inflation may be pushed around by energy, but wage-setting and business expectations will decide whether the Bank of England can stay patient. Bailey appears before the House of Lords Economic Affairs Committee on Tuesday and speaks again on Thursday and Friday, while Greene and Dhingra are also on the schedule. The US calendar is the main event. ISM manufacturing opens the week on Monday, followed by JOLTS on Tuesday, then ADP, factory orders, ISM services and the Beige Book on Wednesday. Challenger job cuts arrive Thursday, before non-farm payrolls on Friday. Consensus looks for a softer payroll gain of around 95k, below last month’s 115k but still above the estimated breakeven range of roughly 30k–70k. The unemployment rate is expected to hold at 4.3%, though risks may be lower if job gains show up in the household survey. A stabilisation in the participation rate would also be welcome after recent declines.

The market is again being forced to confront the uncomfortable mix of stronger oil, firmer inflation risk and less dovish central-bank rhetoric. AI can still support the equity story, and manufacturers may still be looking through the conflict, but the soft-landing trade is more vulnerable when Treasuries sell off on bad geopolitical news. For now, the peace premium has faded, the oil-risk premium is back, and next week’s jobs and inflation-adjacent data will decide whether the current situation is another tradable scare or something more persistent.

Overnight Headlines

• US Strikes Iranian Military Near Hormuz With No Accord In Sight

• IRGC: Targeted US Airbase In Response To Attack Near Bandar Abbas

• ECB Chief Economist Sees Persistent Impact On Inflation From Iran War

• Fed’s Jefferson Warns Of Inflation Risks From Energy Price Surge

• Fed’s Cook Prepared To Raise Rates If Inflation Doesn’t Ease

• Fed’s Kashkari: Infl Fight Takes Priority, Labour Market In Decent Shape

• Fed’s Goolsbee: Oil Shock Could Exacerbate Infl. Impulse Of AI Hype

• BoK Holds Rates Steady Amid Uncertain Outlook For Policy

• Japan Intervention Data Eyed As Yen Hovers Near 160 Per Dollar

• Nomura Analyst Says Near-Term BoJ Hike Still Up In Air On Iran

• New Zealand Government Sees Earlier Return To Budget Surplus

• Amazon Strikes $6B Deal With Snowflake For Its Agentic Chips

• Snowflake Raises Sales Outlook, Touts Impact Of AI Demand

• Salesforce Gives Lukewarm Outlook That Fuels Disruption Fears

• Dell Wins $9.7B Defence Deal To Streamline Software Buys

FX Options Expiries For 10am New York Cut 

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

• EUR/USD: 1.1235 (EU2.13b), 1.1730 (EU1.37b), 1.1725 (EU1.34b)

• USD/JPY: 157.00 ($1.74b), 162.00 ($1.31b), 155.50 ($1.08b)

• USD/BRL: 5.0000 ($410m)

• AUD/USD: 0.7115 (AUD544.6m), 0.7185 (AUD480.6m), 0.7200 (AUD350.2m)

• USD/CAD: 1.3585 ($480m), 1.3550 ($465m), 1.4025 ($349.4m)

• GBP/USD: 1.3300 (GBP492.8m), 1.3200 (GBP322.8m)

• USD/CNY: 6.7500 ($349m)

• NZD/USD: 0.5900 (NZD661.1m), 0.5950 (NZD460.5m), 0.5610 (NZD428m)

CFTC Positions as of May 22, 2026: 

• Speculators are making some notable moves in the futures market! They've reduced their net short position in CBOT US 5-year Treasury futures by 11,629 contracts, bringing the total down to 1,350,516. Meanwhile, there's been an increase in the net short position for CBOT US 10-year Treasury futures, which has risen by 66,885 contracts to hit 848,052.Speculators have also trimmed their net short position in CBOT US 2-year Treasury futures by 41,775 contracts, now sitting at 1,560,837. However, the CBOT US UltraBond Treasury futures saw an uptick in net short positions by 15,470 contracts, reaching a total of 254,464. Similarly, net short positions for CBOT US Treasury bonds futures increased by 5,820 contracts to reach 178,674.

• In the equity markets, equity fund speculators have reduced their net short position in the S&P 500 CME by 34,200 contracts, bringing it down to 384,136. At the same time, equity fund managers have cut their net long position in the S&P 500 CME by 50,929 contracts to a total of 1,005,526.

• Bitcoin's net long position stands at 2,112 contracts. Meanwhile, the Swiss franc has a net short position of -36,937 contracts, and the British pound is not far behind with a net short position of -64,307 contracts. The euro is holding strong with a net long position of 33,513 contracts, while the Japanese yen finds itself with a significant net short position of -93,905 contracts. 

Technical & Trade Views

SP500

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 7440 Target 7630

• Below 7400 Target 7330

DXY

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 98.50 Target 99.50

• Below 98.20 Target 96.12

EURUSD 

• Daily VWAP Bullish

• Weekly VWAP Bearish

• Above 1.1710 Target 1.18

• Below 1.1680 Target 1.1550

GBPUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 1.3445 Target 1.3525

• Below 1.34 Target 1.3350

USDJPY 

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 160 Target 161

• Below 159.50 Target 157.50

XAUUSD

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 4700 Target 4800

• Below 4500 Target 4386

BTCUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 75k Target 80k

• Below 74k Target 71k