Daily Market Outlook, May 19, 2026 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Higher Yields Test the AI Trade

Tech is losing altitude as the global bond selloff starts to bite into AI valuations. MSCI Asia Pacific fell 0.7%, South Korea’s Kospi, one of the clearest AI-capex proxies in the region, dropped 3.7%, and Nasdaq 100 futures are down 0.5% after a second consecutive decline in the Philadelphia Semiconductor Index. The Dollar is firmer across majors, reinforcing the broader risk-off tone. The market is not abandoning the AI story, but it is questioning how much valuation support remains when long-end yields are pushing back toward multi-year highs.

Geopolitics is still the underlying driver of the rates shock. Trump said he would refrain from military action against Iran, helping Brent fall 2% to around $110/bbl, but that is a small relief move rather than a de-escalation. Oil is still up roughly 80% year-to-date, and the Strait of Hormuz remains largely blocked. Meanwhile, both Washington and Tehran have dismissed new proposals as inadequate, with the White House reportedly seeing little change in Iran’s offer and Iran calling US demands unacceptable. That leaves markets pricing a prolonged disruption rather than a quick resolution. The result is a persistent inflation concern, with the US 30yr yield up to 5.14%, its highest since 2023, while Japan’s 30yr yield has reached a record high since issuance began in 1999.

The UK labour market report should strengthen the MPC’s wait-and-see camp rather than the hawks. The timeliest HMRC payrolls measure fell by 100k in April, consistent with weaker survey signals even allowing for the series’ revision risk. The unemployment rate rose to 5.0% in the three months to March, 0.1ppts above both consensus and the BoE’s April MPR expectation, while private-sector regular pay growth slowed to 3.0% on a three-month annual basis, also 0.1ppts below the BoE forecast. More importantly, shorter-term pay momentum is now below its pre-pandemic average for the first time, job-to-job flows continue to slow, vacancies fell by 28k to 705k, and total hours worked dipped slightly in Q1 despite GDP growth of 0.6% q/q. The LFS employment gain of 148k is therefore likely to be discounted given known sampling and methodology issues.

For the MPC, the key argument is that labour slack and wage disinflation can offset some of the inflationary pressure from energy. That does not mean the Bank can ignore oil, but it does make an immediate hawkish response less compelling. The policy debate is therefore likely to sit closer to the April MPR’s scenario A/B camp — where patience is justified — rather than the more hawkish B/C interpretation. The problem is that even if the front end can find some support from softer labour data, the long end remains exposed to global inflation risk, fiscal slippage concerns and term-premium repricing. That is particularly important for gilts. UK yields are now at levels where debt-sustainability considerations become more market-relevant. With trend real growth, g, falling and real yields, r, rising, the classic sustainability condition — g>r — is being challenged. When growth exceeds the real interest rate, debt ratios can stabilise even with modest deficits. But when r>g, stabilising debt-to-GDP requires primary surpluses, leaving far less fiscal room for error. That matters because the UK is already carrying an additional political-risk premium, alongside the fiscal implications of any government support package linked to the energy shock. The AI trade can survive higher yields for a while, but the valuation cushion is thinner, and gilts remain unusually sensitive to any unfavourable mix of oil, politics and fiscal news.

Overnight Headlines

• Trump Says He Called Off A Planned Military Strike Against Iran

• Oil Slips As Trump Spurs Optimism Over Iran Deal

• Dollar Steadies From Weakness As Trump Calls Off Planned Attack On Iran

• Gold Holds Gain As Hopes For Iran Truce Ease Inflation Fears

• Taiwan: China’s Military Actions Are Greatest Source Of Regional Instability

• US Regulators Poised To Reshape Secret Ratings Process For Banks

• Japan, China Lead Declines In Foreign Holdings Of Treasuries In March

• Japan’s GDP Beats; Economy Grows At An Annualised 2.1% In Q1

• RBA Worried Higher Energy Costs Could Quickly Lift Consumer Prices

• RBA Says Hike Gave Scope To Assess How Households Respond To War

• China Will Open Its Market To AI Chips From US, Nvidia’s CEO Says

• Google And Blackstone To Create New AI Cloud Company

• Meta Is Transforming Rural Louisiana With A $200B Data Centre

• Meta Moves 7,000 Workers Into AI Roles Ahead Of Job Cuts

FX Options Expiries For 10am New York Cut 

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

• EUR/USD: 1.1650 (EU2.48b), 1.1815 (EU2.33b), 1.1700 (EU2.15b)

• USD/JPY: 157.00 ($2.82b), 154.00 ($1.58b), 159.00 ($632.7m)

• USD/CNY: 6.5000 ($317m)

• USD/CAD: 1.3710 ($841.6m)

• GBP/USD: 1.3300 (GBP1b), 1.3550 (GBP330m)

• AUD/USD: 0.6800 (AUD737.4m), 0.7135 (AUD532.6m), 0.7150 (AUD333.2m)

• USD/BRL: 5.8000 ($455.2m), 5.2225 ($348.9m)

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