Daily Market Outlook, May 18, 2026 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Bond Markets Buckle as Oil Risk Builds

Global bonds are starting the week under heavy pressure as the Iran risk premium pushes crude higher and forces markets to reprice inflation risk. Trump’s warning that “for Iran, the clock is ticking” has reinforced concerns that the conflict could move back toward a more active military phase, delaying any normalisation of traffic through the Strait of Hormuz. Brent is up around 1.75% to roughly $111/bbl, and the result is a broad-duration selloff. Treasuries are weaker across the curve, with the 30yr yield at its highest in almost three years, while Japan is seeing the sharpest move: the 10yr JGB yield rose as much as 10bp to 2.81%, its highest since 1996, and the 30yr yield jumped 20bp to a record high since issuance began in 1999.

Equities are struggling with the same message. MSCI Asia is down 0.9% and futures point to further declines in Europe and the US as investors question whether elevated equity valuations can survive a higher oil, higher yield backdrop. South Korea remains the exception, with the KOSPI reversing early losses to gain 0.4% on a rebound in Samsung Electronics, but that looks more like residual AI resilience than a broader risk-on signal. The equity story has not fully broken, but it is increasingly dependent on a narrow group of technology leaders delivering enough earnings momentum to offset a more hostile macro environment.

Japan is becoming a focal point for global bond stress. The rise in JGB yields reflects not only imported inflation pressure from energy but also news of a planned fiscal support package to cushion the oil shock. That combination — higher inflation risk plus more fiscal supply or deficit concern — is exactly what global fixed income markets are least willing to absorb right now. Australia and New Zealand bonds are also under pressure, highlighting that this is not a local Japan story but a wider duration repricing. The G7 finance ministers' and central bankers' meeting in Paris today and tomorrow is therefore likely to focus heavily on bond market fragility since the Middle East crisis escalated and on how much fiscal support can be deployed without worsening inflation and term-premium pressures.

China offered little relief. Last week’s Trump-Xi meetings appear to have produced a commitment to pursue a more stable trade relationship through a new “board of trade”, and grain futures rose after the White House flagged additional Chinese commitments to buy US agricultural products. But the domestic Chinese data flow was weak: April retail sales, industrial production and house prices all disappointed, even as unemployment eased to 5.2% from 5.4%. Shanghai equities fell accordingly. The issue for global markets is that China is not currently providing a clean demand offset; instead, it is adding a growth-fragility layer to an already inflationary oil shock.

For the UK, the bond market backdrop remains awkward. Breeden’s comments in the FT that a “steady hand” on rates is preferable to being “trigger happy” carry a dovish slant and may help anchor front-end pricing. But that does little to solve the bigger issue in long-end gilts, where investors are already demanding a premium for inflation risk, political instability and fiscal uncertainty. This week is busy enough to keep Sterling rates volatile: Greene and Mann speak today; Breeden tomorrow, Taylor on Thursday, while labour data arrive Tuesday, CPI Wednesday, and GfK confidence plus retail sales Friday. Headline CPI may ease to 3.0% y/y due to base effects from last year’s water bills and vehicle excise duty increases, but markets will look through the headline and interrogate the components for signs of energy pass-through.

The wider calendar also matters, particularly flash May PMIs on Thursday, which will test whether the oil shock is now hitting confidence and activity. In the US, Wednesday’s FOMC minutes should add colour to the hawkish tilt at Powell’s final meeting as Chair, now that Kevin Warsh has begun his first full week leading the Fed. Canada CPI, Australia labour data and Japan Q1 GDP are also due. The bottom line is that the market is no longer just debating whether AI can keep equities elevated; it is now asking whether global bond markets can absorb an oil shock, fiscal responses and central banks that may be forced to stay restrictive for longer.

Overnight Headlines

• Trump Says Iran Clock Is Ticking Until US Launches Harder Strikes

• Drone Strike Sparks Fire Near UAE Nuclear Plant

• Bond Traders See Tipping Point Toward New Era Of Higher Yields

• Gundlach Says It’s ‘Just Not Possible’ For The Fed To Cut Rates

• US Long Bond Yield Hits Highest Since 2023 On Inflation Concern

• Dollar Firms As Oil Climbs, Bond Rout Saps Risk Appetite

• Gold Slips As Mideast Tensions Lift Oil, Cloud Rate Outlook

• BoE Should Not Be ‘Trigger Happy’ On Rates, Says Top Official

• China’s Economy Slows Sharply As Investment Resumes Declines

• Chinese Oil Refiners Slash Output After Crude Imports Plunge

• US To Mull Action If China Overcapacity Found, Trade Envoy Says

• EU Plans To Force Companies To Buy Parts From Non-Chinese Suppliers

• Lai Says Taiwan Won’t Be Sacrificed As Trump Weighs Arms Deal

• Strategists Say Soaring Japanese Bond Yields Show Fiscal Worries

• Japan’s 5-Year Bond Sale Demand Weaker Than 12-Month Average

• Japan’s Extra Budget To Include Funding From Fresh Debt, Source Says

• Volatile Chipmaker Stocks Emerge As Key Driver Of S&P 500 Rally

• Tech Bubble Fear Lures Investors To Hedge With Exotic Options

• Anthropic To Brief Fin Watchdog On Cyber Flaws Exposed By Mythos

FX Options Expiries For 10am New York Cut 

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

• EUR/USD : 1.1600 (EU3.57b), 1.1650 (EU1.28b), 1.1750 (EU1.13b)

• USD/JPY: 159.00 ($4.65b), 155.00 ($852m), 158.50 ($755.6m)

• USD/CNY: 6.8000 ($320.6m), 6.7757 ($300m)

• GBP/USD: 1.3540 (GBP404.7m), 1.3050 (GBP400m)

• AUD/USD: 0.7170 (AUD855.4m), 0.7320 (AUD776m), 0.7120 (AUD361.1m)

• EUR/GBP: 0.8710 (EU501.7m), 0.8675 (EU455.3m), 0.8700 (EU361m)

• USD/BRL: 5.6500 ($354m)

• USD/MXN: 17.32 ($703.6m)

CFTC Positions as of May 15, 2026: 

• Bitcoin's net long position is 1,259 contracts

• Swiss franc posts net short position of -36,197 contracts

• British pound net short position is -43,059 contracts

• Euro net long position is 40,200 contracts

• Japanese yen net short position is -75,102 contracts

• Speculators trim CBOT US 5-year Treasury futures net short position by 59,154 contracts to 1,362,145

• Speculators trim CBOT US 10-year Treasury futures net short position by 34,102 contracts to 781,167

• Speculators trim CBOT US 2-year Treasury futures net short position by 70,717 contracts to 1,602,612

• Speculators trim CBOT US UltraBond Treasury futures net short position by 20,441 contracts to 238,994

• Speculators trim CBOT US Treasury bonds futures net short position by 88 contracts to 172,854

• Equity fund speculators increase S&P 500 CME net short position by 28,764 contracts to 418,335

• Equity fund managers raise S&P 500 CME net long position by 42,501 contracts to 1,056,455

Technical & Trade Views

SP500

• Daily VWAP Bearish

• Weekly VWAP Bullish

• Above 7330 Target 76300

• Below 7300 Target 7200

DXY

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 98.85 Target 99.50

• Below 98.50 Target 96.12

EURUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 1.1710 Target 1.18

• Below 1.17 Target 1.16

GBPUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 1.3445 Target 1.3885

• Below 1.34 Target 1.33

USDJPY 

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 160 Target 161

• Below 159.50 Target 152

XAUUSD

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 4700 Target 4800

• Below 4500 Target 4386

BTCUSD 

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 79.5k Target 81k

• Below 79.5k Target 74k