Market Compass May 2026

Highlights:

• With the Iran conflict now into its third month, the Strait of Hormuz remains closed despite a pivotal ceasefire. We still see good chances of a negotiated reopening over the next weeks, removing a key headwind to risk assets. But we acknowledge that risks to this view are high given the inconclusive talks so far.
• Markets appear to be overpricing the central bank response. We expect only one ECB hike versus three currently priced in, as energy-driven inflation is unlikely to spark a 2022-style wage-price spiral. This supports a neutral duration stance and underpins credit valuations.
• Amid ample global liquidity and solid earnings growth – particularly in the US – the V-shaped equity recovery has fundamental backing but is already advanced, notably in technology. European stocks, still below pre-war levels, offer upside in case of a swift de-escalation.
   

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