Weekly Market Review - 26-05-2026

May 26
5 min read

Markets moved higher over the week as investor sentiment improved across both UK and US equities. Gains were supported by renewed appetite for risk assets, although investors continued to monitor inflation pressures, higher energy prices and ongoing geopolitical tensions in the Middle East. The week also highlighted the growing economic importance of climate-related disruption, with the UK heatwave adding pressure on infrastructure, public services and household costs.

Market Recap.

Equity markets delivered a broadly positive performance this week, with gains across both UK and US markets as investor sentiment improved.

UK equities moved higher, with the FTSE 100 ETF rising approximately 2.70% over the week.

In the United States, markets also advanced. The Dow Jones Industrial Average ETF rose approximately 2.17%, while the S&P 500 ETF gained around 0.88%, highlighting renewed strength across broader US equities.

Technology stocks also moved higher, with the Nasdaq 100 ETF rising approximately 1.21%, supported by continued demand for growth-oriented companies.

News.

The UK heatwave is highlighting the economic impact of extreme weather, with temperatures potentially reaching 35°C after the UK recorded its hottest ever May day at 34.8°C in Kew Gardens.

Disruption is already being felt, with around 500 properties in Sussex and Kent left without water or facing intermittent supply due to increased demand, while several bank holiday events were cancelled because of the heat.

While warmer weather can support leisure and hospitality spending, extreme heat also creates risks for infrastructure, transport, productivity and public health, making climate-related disruption an increasingly important economic issue.

Inflation.

UK shop price inflation increased in May, according to data from the British Retail Consortium.

Annual shop price inflation rose to 1.2% in May, up from 1.0% in April and above the three-month average of 1.1%. The increase was driven by non-food prices, which rose 0.5% year-on-year after falling 0.1% in April.

Food price inflation eased to 2.7% in May, down from 3.1% in April, marking the lowest level recorded in a year. Fresh food inflation slowed to 3.4%, while ambient food inflation eased to 1.6%.

Helen Dickinson, Chief Executive of the BRC, said: “Shop price inflation edged up in May as non-food prices rose. Furniture and health & beauty saw the sharpest increases, driven by rising raw material and shipping costs.”

Central Banks.

The European Central Bank is expected to raise its inflation forecast at its June meeting, following the impact of the Middle East conflict on energy prices.

ECB Chief Economist Philip Lane said oil prices are now expected to remain higher for longer than the Bank had assumed in March. He told Nikkei: “We are likely to make a further upward adjustment to the inflation forecast in June.”

Lane also said the conflict is expected to weigh on growth, while inflation pressures have increased. However, he noted that a rise in US natural gas supply could help offset some of the impact on energy prices.

Commodities.

WTI crude is trading around $92 per barrel, compared with approximately $87 per barrel last week. That means WTI crude has increased by around $5 per barrel, or roughly 6%.

Brent crude has increased to around $97 per barrel (approximately 7%) compared with $91 per barrel last week.

Oil prices remain sensitive to developments in the Middle East, particularly around the Strait of Hormuz and the risk of disruption to global energy supply routes.

ESG.

The Climate Change Committee has warned that the UK will need to accelerate climate adaptation as more frequent heatwaves, flooding and drought place growing pressure on homes, workplaces, public services and infrastructure.

The report identified heatwaves as the greatest climate-related threat to public health, with calls for cooling in hospitals and care homes by 2035, and in schools by 2050. It also warned that by 2050, 92% of homes are likely to overheat, peak river flows could be up to 45% higher, and water shortfalls could reach five billion litres per day.

The CCC also highlight an important ESG trade-off around air conditioning. While cooling may become necessary to protect vulnerable people, air conditioning can increase energy demand and relies on chemicals known as HFCs, which contribute to global warming. This reinforces the need for lower-carbon cooling solutions, better building design, shading, shutters, tree cover and heat pumps that can provide both heating and cooling.

Geopolitics.

Geopolitical tensions remain elevated after the US launched new strikes on southern Iran, targeting Iranian missile sites and boats that US Central Command said were attempting to place mines. Centcom said the strikes were carried out in “self-defence” and were designed “to protect our troops from threats posed by Iranian forces”.

The strikes took place near Bandar Abbas, a southern port city and Iranian naval base located on the Strait of Hormuz, a key global energy shipping route. Iran’s Islamic Revolutionary Guard Corps said it had downed a US drone and fired at a fighter jet and another drone that entered Iranian airspace, while stating that Iran had the “legitimate and definite” right to retaliate against any US ceasefire violations.

Diplomatic efforts are continuing, with US Secretary of State Marco Rubio saying a deal remains possible, while talks are taking place between Iran’s foreign minister and Qatar’s prime minister. The memorandum under discussion reportedly includes a 60-day ceasefire extension, reopening the Strait of Hormuz and further negotiations over Iran’s nuclear programme.

Week Ahead.

United States

In the United States, attention this week will focus on growth, inflation and consumer spending data following the Memorial Day holiday on Monday 25 May. The key releases come on Thursday 28 May, when the Bureau of Economic Analysis publishes the second estimate of Q1 GDP and Personal Income and Outlays for April, which includes the Federal Reserve’s preferred inflation measure, the PCE price index. Weekly Initial Jobless Claims are also due on Thursday 28 May, providing a timely update on labour market conditions. Markets will also monitor durable goods and housing-related data during the week for further signs of economic momentum.

United Kingdom In the UK, the domestic data calendar is lighter this week following last week’s inflation and retail sales releases. The Office for National Statistics is due to publish Household Costs Indices for UK household groups on Thursday 28 May, alongside several household and labour market-related releases. On Friday 29 May, the ONS will publish its latest Economic activity and social change in the UK, real-time indicators update, offering a more timely view of conditions across the economy. Markets will also continue to monitor Bank of England commentary, with the Bank due to publish Capital Issuance data for April on Friday 29 May.

Eurozone

Across the Eurozone, attention will centre on economic sentiment indicators and European Central Bank commentary. The European Commission’s business and consumer survey results, including the Economic Sentiment Indicator, Employment Expectations Indicator and sector confidence readings, are due on Thursday 28 May. Investors will also continue to monitor ECB commentary ahead of the June policy meeting, particularly around inflation and the impact of higher energy prices.

It is important to note that the geopolitical situation remains highly fluid, and developments are changing rapidly. As such, the outlook may shift quickly as new information emerges.