Please see the below article from Tatton Investment Management discussing improving market sentiment driven by easing geopolitical tensions, resilient global growth and strong US (AI-led) corporate earnings, received this morning – 11/05/2026.
Reasons to believe
Operation Epic Fury is over and markets are betting that the Strait of Hormuz will be open soon. Both stocks and bonds bumped up; equities helped by strong corporate earnings especially in the US; bonds benefitting from lower inflation expectations for the next twelve months.
Oil prices dropped through last week with the nearest Brent crude futures contract (July) falling below $100 pb. However, Iran’s refusal to engage in discussions on the nuclear issue has seen it rise back to $105 pb. Nevertheless, most traders believe that US-Iran peace talks will probably wrap up around Trump’s visit to China at the end of this week – given Beijing’s pressure on its Iranian all to reopen the Strait. The risks look less risky than a week ago. Oil prices won’t fall rapidly (reserves need to be rebuilt) but the long-term energy outlook has tipped back to oversupply.
The next Trump show episode could be another tariff tirade against Europe, though that could be coupled with warming of US-China relations and hence lower tariffs on China.
Global growth has been much more resilient than expected – particularly in the US. The US added 115,000 jobs in April and there is little sign of AI impacts. That’s feeding through into phenomenal corporate earnings. Large cap indices are heavily concentrated on a few AI winners, but small and midcap indices show strong earnings too. It’s a little surprising the dollar has fallen back after this strength, but that could be about the long-term fragmentation of global trade (as we’ve covered before). Dollar weakness might now be the default trend.
Equity valuations have cheapened since the start of 2026, global growth has improved and, this week, bond yields have come back from their highs (especially in the UK, due to gilts’ inflation sensitivity). Tighter monetary policy detracts from the outlook, but central banks might loosen if energy prices fall. The Fed will probably cut rates under new chair Kevin Warsh – but that will require a balance sheet reduction, to avoid overstimulating a strong US economy. Many are sympathetic to Warsh’s low-rates, lighter-balance-sheet approach, but the reduction in liquidity could knock markets in the short-term. The need to convince committee colleagues (including Powell) will keep the reduction slow, at least.
April asset returns review
Global equities rallied 6.9% in April in sterling terms, recovering from the March sell-off despite the fallout from the US-Iran war. US stocks gained 7.2%, climbing above their level from before the war. They were helped by the resilience of US growth and strong corporate earnings – particularly for big tech companies. The capital rotation away from e saw at the start of 2026 is now reversing, with the AI theme dominating again.
UK and European stocks didn’t reach their pre-Iran war levels and both stalled into the end of the month (+2.3% and +4.5% respectively), reflecting energy vulnerability.
Global bond prices gained 0.3% but saw significant volatility, and UK bonds (gilts) dropped 0.5%. Higher inflation and interest rate expectations shifted demand to shorter-term bonds, pushing up long-term yields. The fact the UK was worse hit is down to an imbalanced gilt market (more long-term and inflation-linked bonds than elsewhere), rather than politics.
Central banks held rates steady, but the BoE and ECB suggested rate hikes might be needed in June, to stop the energy shock becoming a price spiral. The BoJ is also likely to hike next month, but Japanese stocks still gained 5.9% last month. The Fed paused its rate cuts but maintained a dovish bias – despite some objections and the continued strength of the US economy.
Emerging markets gained 11.3%, powered mainly by three chip manufacturers involved in the AI theme: Taiwan’s TSMC and South Korea’s Samsung and SK Hynix. That doesn’t mean other EM stocks were bad; in fact, we saw a broad outperformance in EM earnings.
Oil prices unsurprisingly bounced around but finished April only 3% higher in sterling terms. Futures pricing suggests a swift end to the conflict and resumption of the long-term global oversupply. Risks grew in April, but investors climbed the wall of worry.
How open is too open for AI?
Chinese start-up DeepSeek promised to disrupt US tech companies with its low-cost AI model last year, but its valuation is still dwarfed by big US tech.
Investors have swung back towards big tech stocks in recent weeks, after a brief rotation into small-cap and non-US stocks in early 2025. Goldman Sachs’ measure of S&P 500 market breadth narrowed to a historic low last week, with returns heavily focussed on the AI winners. Investors are nervous about excessive AI spending (exemplified by Meta’s recent fall) but are favouring companies already monetising the technology. That’s generally the so-called “hyperscalers” with large moats around their models and businesses.
The standout winner is Alphabet, with all its data and proprietary AI models. The AI race in the US is a winner-takes-all brand of techno-capitalism, where being the first to make the latest model is what matters. That’s led to increasingly closed-off tech companies, unlike the open-source approach of Chinese AI start-ups. DeepSeek plans to make its latest V4 models open-source. After the proliferation of open-source AI in China, Chinese models now account for a large share of global AI usage. Beijing sees the open-source competition as essential to keep up in the AI race, but it requires significant public investment and compresses start-up profits.
Europe is basically absent from the AI race, hampered by data restrictions. There may be good reasons for those restrictions (India’s Modi similarly argued for “data sovereignty” at a recent AI summit) but they still hinder AI development. Meanwhile, security risks are mounting: Anthropic’s powerful cybersecurity AI Mythos was allegedly subject to unauthorised access from state actors. That underscores the fact AI is increasingly a frontline geopolitical issue. Whether to make AI open or closed source could be a key dividing line in 21st century geopolitical rivalries.
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Marcus Blenkinsop
11th May 2026