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Global markets continued to monitor developments surrounding the proposed US-Iran peace deal. Hopes for a resolution strengthened despite continued back-and-forth negotiations, with investors also optimistic about the much-awaited reopening of the Strait of Hormuz.
On the macro front, the University of Michigan's Consumer Sentiment Index in the US fell to a record low of 44.8 in May 2026 from 49.8 in April, reflecting concerns over elevated prices linked to the West Asia conflict. Inflation expectations also increased, with the one-year outlook rising to 4.8% from 4.7% and the five-year outlook to 3.9% from 3.5%.
Domestically, the RBI announced a record dividend payout of Rs. 2.9 lakh crore to the Government of India for FY26, broadly in line with Budget estimates, providing support to the fiscal deficit. In its monthly bulletin, the RBI also highlighted the resilience of the domestic economy while cautioning that elevated crude oil prices and capital outflows remain key risks to the external sector.
Global equity markets ended higher as investors digested geopolitical developments. The Nikkei recorded the strongest gains, supported by a weaker Japanese yen, while a technology-led rally pushed the Dow Jones to a record closing high. In India, the Sensex advanced, led by banking stocks. It is trading higher today, in line with other Asian markets.
Source: Bloomberg, Bank of Baroda Research
Global currencies traded mostly firmer against the US dollar, except for the euro and Japanese yen. The US Dollar Index (DXY) edged marginally lower following weaker macroeconomic data. The Indian rupee appreciated by 0.5%, supported by likely RBI intervention, and is trading stronger today following remarks by the RBI Governor. Other Asian currencies are also trading higher.
Global bond yields eased, led by the UK and Germany. The UK's 10-year yield declined the most despite persistent public sector borrowing, while Germany's yield softened amid reports that the ECB may revisit its inflation outlook. Elsewhere, benchmark yields remained largely stable. India's 10-year government bond yield declined by 2 basis points following favourable auction results and the RBI's dividend announcement, and is trading lower today at around 7.03%.
Banking system liquidity remained unchanged, with net surplus liquidity at Rs 0.6 tn on 22 May 2026, the same as the previous session.
Source: RBI, Bank of Baroda Research
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 15 May and 18 May 2026.
Oil prices edged higher during the previous trading session but declined sharply in subsequent trading, falling to around US$98 per barrel as investors grew increasingly optimistic about a potential US-Iran peace agreement. Gold prices eased, while copper, zinc and aluminium registered modest gains.
Global markets remained cautious amid ongoing developments in the US-Iran peace talks. While hopes for a peace agreement initially improved, optimism faded after the US launched fresh defensive strikes targeting Iranian ships. Investors believe that the prolonged conflict could keep global energy prices elevated even after hostilities end, as oil supply chains may take considerable time to normalize.
On the macro front, persistent energy inflation has complicated the outlook for global central banks. Markets have increased expectations that the US Federal Reserve could resume rate hikes by the end of the year if inflationary pressures remain elevated. Domestically, investors are awaiting the release of India's Q4 FY26 GDP data for further economic direction.
Global equity markets ended higher as investors gradually adjusted to the continuing uncertainty surrounding the US-Iran conflict. The Nikkei outperformed after supportive comments from the Bank of Japan's Deputy Governor regarding future policy adjustments. Most major global markets remained closed due to public holidays. In India, the Sensex advanced strongly, led by banking stocks, and is trading higher today alongside mixed Asian markets.
Source: Bloomberg, Bank of Baroda Research | Note: Markets in the US, UK and Hong Kong were closed on 25 May 2026.
Global currencies mostly strengthened against the US dollar. Among major currencies, the Japanese yen and Indian rupee recorded the strongest gains. The rupee benefited from supportive remarks by the RBI Governor and favourable global cues, although it is trading weaker today following reports of fresh US strikes on Iran. Other Asian currencies are also trading lower.
Source: Bloomberg, Bank of Baroda Research | Note: Markets in the US were closed on 25 May 2026.
Global bond yields eased, with Germany's 10-year yield recording the sharpest decline after ECB officials indicated that higher energy prices were unlikely to trigger significant second-round inflation effects. Japan's 10-year yield also declined amid reports of reduced government bond issuance. India's benchmark 10-year yield fell by 6 basis points, supported by lower crude oil prices, and is trading broadly unchanged today.
Source: Bloomberg, Bank of Baroda Research | Note: Markets in the US and UK were closed on 25 May 2026.
Source: Bloomberg, Bank of Baroda Research | Note: Mutual Fund data as of 20 May and 21 May 2026.
Oil prices inched down in the last trading session on optimism surrounding a potential US-Iran peace deal. However, following fresh US strikes on Iran, crude prices have moved higher again. Gold advanced, while base metals ended mostly higher.
Global markets remained largely subdued a day after the US launched strikes on Iran. In the US, the Conference Board Consumer Confidence Index declined to 93.1 in May 2026 from 94.7 in the previous month, reflecting growing concerns over rising prices. In Japan, the Bank of Japan's new core inflation measure accelerated to 2.8% in Apr’26 from 2.5% in Mar’26, remaining above the central bank’s 2% target. BoJ Governor indicated that even temporary energy price shocks could trigger second-round inflationary effects, strengthening expectations of a policy rate hike in Jun’26.
Elsewhere, the Reserve Bank of New Zealand kept interest rates unchanged but signalled the possibility of future rate hikes. A key European Central Bank policymaker also advocated another rate increase amid persistent inflationary pressures. In Australia, headline inflation eased to 4.2% in Apr’26 from 4.6%, supported by fuel tax cuts, although core inflation continued to edge higher. Meanwhile, China's industrial profits grew sharply by 24.7% in Apr’26 compared with 15.8% in Mar’26, driven by strong performance in the high-tech manufacturing sector.
Global equity markets ended mixed. The S&P 500 and FTSE were supported by a rally in technology stocks, while Japan’s Nikkei slipped following hawkish comments from Bank of Japan officials regarding inflation. In India, the Sensex declined, led by losses in consumer durable stocks. It is trading lower today, while other Asian markets are showing mixed trends.
Global currencies ended weaker against the US dollar. The DXY Index declined as US consumer confidence weakened in May 2026. The Indian rupee depreciated by 0.5% due to renewed gains in crude oil prices and is trading weaker today, in line with other Asian currencies.
Global bond yields ended mixed. US 10Y yields declined sharply following changes in Federal Reserve leadership expectations, while UK yields eased on softer retail sales data. Japan’s 10Y yield edged higher amid hawkish comments from Bank of Japan officials. India's benchmark 10Y yield declined by 3 basis points and is trading broadly stable today.
Oil prices increased by 3.6% as tensions between the US and Iran resurfaced. Gold prices declined, while copper and zinc edged lower. Aluminium was the only base metal to register gains during the session.
Reports of a possible 60-day extension of the ceasefire between the US and Iran lifted investor sentiment. The agreement, which is yet to be formally approved by both sides, is also expected to end the blockage in the Strait of Hormuz. Elsewhere, US macroeconomic data painted a weaker picture. Core PCE, the Fed’s preferred inflation gauge, increased by 3.3% YoY in Apr’26 versus 3.2% in Mar’26. However, on a month-on-month basis, core PCE rose by 0.2% in Apr’26 compared with 0.3% in Mar’26. US Q1 GDP growth was revised down to 1.6% from the earlier estimate of 2.0%, reflecting weaker consumer spending and investment. Separate data also showed a 1.1% decline in US non-defence capital goods orders. In Japan, Tokyo core inflation eased to 1.3% in May’26 from 1.5% in Apr’26, largely due to government subsidies aimed at reducing the cost of living.
Global equity markets ended on a mixed note. Reports of a possible 60-day ceasefire agreement between the US and Iran supported US equities. Most Asian markets, except the Shanghai Composite, closed lower as investors continued to assess the impact of the conflict. The Sensex also ended lower, weighed down by banking stocks. However, it is trading higher today, while other Asian markets are showing mixed trends.
Source: Bloomberg, Bank of Baroda Research │ Note: Markets in India were closed on 28 May 2026.
Global currencies appreciated as risk sentiment improved. Expectations of a US-Iran ceasefire pushed the US Dollar Index (DXY) lower. Among major currencies, the euro and Japanese yen appreciated by 0.2% each. The Indian rupee is trading stronger today, in line with other Asian currencies, supported by positive global cues.
Global bond yields broadly moved lower following reports of a potential 60-day ceasefire agreement between the US and Iran. Benchmark 10-year yields in both the US and the UK declined by 4 basis points. Despite sticky US core PCE inflation, optimism surrounding a possible truce supported bond markets. India's 10-year government bond yield remained broadly stable and is trading lower today at around 6.98%.
Source: RBI, Bank of Baroda Research │ Note: Markets in India were closed on 28 May 2026.
Source: Bloomberg, Bank of Baroda Research │ Note: Mutual Fund data as of 20 May and 21 May 2026. │ Note: Markets in India were closed on 28 May 2026.
Oil prices dipped to a one-month low following reports of an extension of the US-Iran ceasefire.
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