Global markets enter a densely packed week of data and events that could reshape near-term sentiment across commodities, bonds, currencies and equities. Key drivers include a renewed surge in oil prices, fresh U.S. employment figures, local elections in Britain, a heavy slate of European corporate reports and an uncertain Reserve Bank of Australia decision.
Oil and geopolitics
Oil has climbed again, briefly moving back above $120 per barrel to reach its highest level since 2022, as the conflict in the Middle East extends into a third month. The continuing hostilities have produced what officials and market participants describe as the biggest ever disruption to energy supplies, raising concerns about sustained upward pressure on fuel costs.
One of the acute market risks is disruption at the Strait of Hormuz. If the Strait remains closed for additional weeks, the implication is persistent upward pressure on oil prices, which in turn heightens the risk of higher inflation, weaker growth, or both. That dynamic has already prompted policy and market responses: Japan, an oil importer, intervened in currency markets to support a yen weakened by the conflict.
Despite energy-driven stress, global equities have so far shown resilience, supported by strong corporate earnings and momentum in artificial intelligence-related stocks. Still, some traders remain mindful of the seasonal saying - "sell in May and go away" - as the market navigates these layered risks.
U.S. labour data under the microscope
Wall Street will be watching Friday's April monthly payrolls report closely as the U.S. economy contends with spillovers from the Middle East war. Reuters polling of economists expects the U.S. economy to have added 73,000 jobs in April. By comparison, payrolls rose by 178,000 in March, the largest monthly gain since December 2024, following a sharp drop in February.
The labour figures arrive at a sensitive moment for U.S. monetary policy. The Federal Reserve maintained interest rates at its most recent meeting, as broadly anticipated, but three policymakers dissented because they believed the policy statement's reference to an "easing bias" was no longer appropriate. Those dissents underscore obstacles to rate cuts this year, even as political developments are set to change the Fed's leadership. Kevin Warsh, President Donald Trump's pick, is preparing to take over as chair, and the president has expressed a strong interest in cuts to policy rates.
Britain's local elections and gilt market stress
Thursday's municipal elections in Britain, typically a low-profile political event, could have outsized market consequences this time. Opinion polls suggest a potential heavy defeat for Prime Minister Keir Starmer's Labour Party. That prospect has the potential to unsettle financial markets because gilts have experienced selling pressure at moments that threatened the prime minister's political standing earlier in the year.
Political tension has been compounded by controversy surrounding Mr. Starmer's appointment of Peter Mandelson as Britain's ambassador to the United States. Mandelson's known ties to the late U.S. sex offender Jeffrey Epstein have drawn criticism. A significant electoral setback for Labour could increase calls within the party for Mr. Starmer's dismissal and raise the likelihood of a successor willing to pursue looser fiscal policies - a shift that could further pressure British government bonds.
Already, the 10-year gilt is the weakest performer among G7 peers since the Iran war began on February 28, underperforming by a wide margin.
European earnings season leans on energy
Europe's corporate reporting calendar heats up this week, with major energy companies and banks among those posting results. Energy majors Shell and Equinor, lenders Commerzbank and HSBC, and defence contractors Rheinmetall, Leonardo and Renk are all scheduled to report.
On aggregate, European earnings are expected to show solid growth of 3.2% in the first quarter, according to LSEG I/B/E/S. But that headline figure masks concentration beneath the surface: expected growth is being driven primarily by three sectors - financials, technology and energy. The energy sector is viewed as the biggest beneficiary of higher oil and gas prices tied to the Iran war.
If the war and the associated energy price surge continue, the broader outlook for European corporate profits could deteriorate. This quarter's results may be too soon for such a shift to be fully reflected in company guidance, but the reporting season will be closely watched for signs that firms are beginning to revise outlooks for coming months. For some investors, robust U.S. stock performance has drawn attention away from Europe, but the earnings flow may bring focus back.
Australia's policy choice hangs in the balance
The Reserve Bank of Australia's decision on Tuesday could come down to a narrow call, with a potential third straight 25 basis point rate hike under consideration. The central bank raised its key rate by 25 basis points to 4.1% in March after a 5-4 vote, the narrowest margin since it began publishing vote breakdowns last year. Meeting minutes from that session indicated that concerns about the duration of the Middle East war were a key consideration as policymakers weighed inflation risks against economic growth.
Another lift would return the RBA's cash rate to a post-pandemic high and would reverse the rate reductions delivered last year. Governor Michele Bullock emphasized that the close split in March reflected timing rather than policy direction, and that all board members agreed further tightening was necessary. Markets currently assign about an 80% probability to an additional hike, a probability that is slightly lower than it had been prior to the release on Wednesday of cooler-than-forecast core inflation figures.
What to watch this week
- Oil prices and any new developments affecting the Strait of Hormuz and supply flows.
- Friday's U.S. payrolls report and its potential influence on the Federal Reserve's path for interest rates.
- UK municipal election outcomes and any resulting shifts in gilt market sentiment.
- European corporate results, particularly from energy, financial and technology firms, for signs of guidance revisions.
- The RBA's policy decision and the central bank's assessment of inflation and geopolitical risk.