Financial markets started the week on a cautious note as investors remained concerned about the ongoing Iran conflict, shrinking global oil reserves, and President Donald Trump’s tariff policies. Sentiment also stayed weak ahead of the preliminary May Purchasing Managers’ Indexes (PMIs) from major economies. Trump’s warning that Iran could face fresh military action if no agreement is reached by Tuesday further reduced risk appetite. With Canada observing a holiday and limited economic events elsewhere, trading activity may stay subdued on Monday.
Asian stocks extended last week’s Wall Street losses as markets reacted negatively to rising oil prices, higher government bond yields, and worsening geopolitical tensions linked to the Iran war.
Trump intensified pressure on Iran over the weekend, warning Tehran to quickly move toward a peace agreement or risk destruction. According to Axios, Trump is still waiting for a revised Iranian proposal and believes negotiations remain possible despite the conflict entering its fourth month without progress.
Tensions escalated further after a drone strike triggered a fire at an electrical generator at the Barakah Nuclear Power Plant in the United Arab Emirates (UAE) on Sunday. The UAE Defence Ministry said two additional drones were intercepted before reaching the facility and stated the attack originated near the western border. While no group was officially blamed, a UAE presidential adviser described the incident as a dangerous escalation regardless of whether it involved a state or proxy force. The UAE called the incident a terrorist attack and said it reserves the right to respond.
Separately, Israel confirmed a targeted operation in Gaza against a Hamas leader, while Iran’s Foreign Minister said talks with the U.S. continue to suffer from a lack of trust.
Meanwhile, the recent U.S. economic data painted a stronger picture. April industrial production increased 0.7%, beating the 0.3% estimate, while the previous reading was revised to -0.3% from -0.5%. The New York (NY) Federal Reserve (Fed) Manufacturing Index jumped to 19.6 in May, far above the expected 7.5 and higher than the prior 11.0 reading.
In currency markets, the U.S. Dollar Index (DXY) traded near a six-week high after a five-day rally. EURUSD and GBPUSD slipped to their weakest levels since early April, while USDJPY climbed for a sixth straight session to a two-week high. AUDUSD and NZDUSD extended recent declines, whereas USDCAD paused its eight-day advance near a five-week high.
West Texas Intermediate (WTI) Crude Oil opened the week with a gap higher and reached a two-week high. Gold prices dropped to a seven-week low, marking a fifth straight daily decline. Asia-Pacific equity markets and cryptocurrencies also traded lower amid the broader risk-off mood, tracing Friday’s downbeat performance of the U.S. equities.
The risk-off mood eased early Monday as traders adjusted positions ahead of key economic data and events this week. Mixed market signals and consolidation helped reduce pressure on risk-sensitive assets and major currencies. EURUSD and GBPUSD snapped their five-day losing streaks near early April lows, while USDJPY rose for a sixth straight day to a two-week high.
In Japan, the 10-year government bond yield jumped to 4.2%, its highest since 1996, after reports confirmed fresh debt issuance plans to support a supplementary budget aimed at offsetting Iran war-related energy costs.
In the UK, Rightmove reported asking prices for homes rose 1.2% in May from April, above April’s 0.8% increase and the usual 1.0% seasonal gain. However, prices remained 0.3% lower year-on-year (YoY). Property sales agreed were down 4% from 2025 levels but 2% higher than in 2024.
Meanwhile, a Chartered Institute of Personnel and Development (CIPD) survey of 2,049 firms showed UK businesses are prioritising cost control over growth and productivity, keeping employer confidence near record lows. The survey added that the Iran conflict has not yet materially affected hiring plans.
Separately, Bank of England (BOE) policymaker Sarah Breeden told the Financial Times (FT) there is no urgency to cut interest rates, adding policymakers still have time to assess economic conditions and should avoid overreacting.
Although the U.S. Dollar paused its rally and crude oil started the week higher on Monday, the Australian, New Zealand, and Canadian Dollars stayed under pressure. Weak Chinese data, a key export driver for these economies, added to the cautious tone. Mixed domestic signals further weighed on AUDUSD and NZDUSD, while supporting USDCAD.
In China, data disappointed across the board. The National Bureau of Statistics (NBS) reported industrial production slowed to 4.1% year-on-year (YoY) in April from 5.7% in March, below the 5.9% forecast. Retail sales rose just 0.2%, the weakest since December 2022 and far under the expected 2.0%, according to Reuters. Fixed-asset investment fell 1.6% in the first four months of 2026 after a prior 1.7% rise. Domestic car sales dropped 21.6% YoY for a seventh straight month, while the House Price Index eased to -3.5% YoY from -3.4%.
The NBS described the global environment as difficult and complex, calling for stronger fiscal support and looser monetary policy. However, China’s Politburo avoided announcing any major new stimulus.
In New Zealand, the Bank of New Zealand (BNZ)-BusinessNZ Performance of Services Index (PSI) rose slightly to 48.9 in April from 46.2 but stayed below the 50.0 expansion level. BusinessNZ CEO Katherine Rich noted that weak conditions were widely reported, with higher fuel costs linked to tensions around the Strait of Hormuz adding pressure.
In Canada, Manufacturing Sales rose 3.0% in March, below the 3.5% forecast, while the prior reading was revised down to 3.4%. Housing starts, however, jumped to 279.3K in April, beating expectations of 240.0K.
Oil remained the key driver for financial markets, starting the week with a gap-up after a strong weekly performance.
Crude extended gains as diplomatic talks between the U.S., Israel, and Iran showed little progress. Reports that President Donald Trump will meet senior national security officials on Tuesday to consider military options increased fears of renewed conflict. His latest warning to Iran further raised expectations of possible escalation.
Jeff Currie, former Head of Global Commodities Research at Goldman Sachs, warned that U.S. oil inventories are quickly approaching minimum storage levels. He noted stocks have already dropped to around 102 million barrels even before peak summer demand fully kicks in.
Global reserves had entered the conflict near decade highs, supported by strong Gulf exports before the war. However, much of that buffer has now been largely depleted. The tightest pressure is now in refined products like diesel, petrol, and jet fuel due to disrupted Gulf supply and lower refinery output. Analysts warn that if developed economies begin drawing on private reserves, prices could spike sharply, with severe shortages likely for import-dependent countries.
Weak market sentiment, combined with a broadly firm U.S. Dollar despite its intraday softness, pressured gold, cryptocurrencies, and equities.
In crypto markets, risk appetite weakened further. Bitcoin (BTC) slipped to its lowest level in over two weeks, while Ethereum (ETH) extended losses for a fourth straight session.
U.S. equities also closed lower as rising bond yields and higher energy costs weighed on sentiment. The Dow Jones Industrial Average fell 1.07% on Friday, ending the week down 0.17%. The Standard & Poor’s 500 (S&P 500) dropped 1.24% on the day but still posted a weekly gain of 0.13%. The NASDAQ declined 1.54% Friday, finishing the week down 0.08%. The Russell 2000 underperformed, losing 2.44% on the day and 2.37% for the week as higher yields hit small caps harder.
Amid the broader weakness, Microsoft shares outperformed after Bill Ackman’s Pershing Square disclosed a new investment in the company. Ackman cited Microsoft’s strong long-term outlook in enterprise software and Artificial Intelligence (AI).
Speeches from European Central Bank (ECB) and Bank of England (BOE) officials, along with the U.S. NAHB Housing Market Index, are set to drive intraday trading activity amid holidays in Canada. However, the main focus remains on U.S. President Donald Trump’s Tuesday Situation Room meeting, where decisions on Iran could shape near-term market direction.
On a weekly basis, key data releases from the United Kingdom (UK), Canada, and Japan will guide sentiment ahead of the preliminary May Purchasing Managers’ Indexes (PMIs). In addition, earnings from Nvidia and updates on the U.S.-China trade deal will be closely watched for broader market cues.
Risk aversion continues to support the U.S. Dollar (USD), alongside Federal Open Market Committee (FOMC) rate hike expectations, keeping pressure on major currencies, cryptocurrencies, and gold. However, crude oil may continue its recent recovery unless a U.S.-Iran peace deal is reached, which appears less likely in the current environment.
May the trading luck be with you!
