Peace Optimism Sparks a Relief Rally But the Rate Reality Hasn't Gone Away

Week at a Glance

S&P 500: +1.84% | FTSE 100: +2.20% | Gold: +0.36% | Bitcoin: −1.04%

YTD: S&P 500 +9.52% | FTSE 100 +6.03% | Gold +4.67% | Bitcoin −12.21%

Source: MarketPulse (OANDA) | Week ending 22 May / Asia Open 26 May 2026

What Drove Markets Last Week

Markets endured a violent week of whipsawing sentiment — from stagflation fears to a risk-on relief rally — as geopolitics and monetary policy collided head-on.

The week opened in crisis mode. The US rejected an initial Iranian diplomatic offer, immediately spiking crude oil and reigniting inflation fears. That anxiety was compounded by a hawkish monetary repricing: the official confirmation of Kevin Warsh as incoming Fed Chair triggered aggressive institutional positioning for an era of balance sheet reduction, driving US Dollar dominance and crushing equities, gold, and crypto under the weight of surging bond yields.

Then the narrative flipped. A sudden and highly promising path to peace emerged, supported by strategic Middle Eastern mediation. The relief rally that followed was swift and substantial, with European stock markets leading global assets. EU stocks finished the week up +4.30%, Dow Jones +3.02%, and NASDAQ +2.07%. Oil tumbled 7.25%, easing the most acute inflation concerns heading into the weekend.

Crypto saw heavy outflows late in the week. Bitcoin finished −1.31% and ETH −1.96% — a notable divergence from the broader risk-on tone.

The Setup Entering This Week

The core tension has shifted but not resolved. Geopolitical optimism is real: Trump and Secretary of State Rubio have signalled an imminent US-Iran memorandum, but Tehran has cautioned that critical Hormuz specifics are not yet agreed. The IEA warns global oil inventories could reach critical levels by June if the blockade is not structurally resolved — leaving open a scenario where crude surges past $150/bbl.

On rates, the picture is now unambiguously hawkish. Headline CPI has climbed to 3.8% and core PCE is expected to edge up to 3.3%. Fed funds futures have completely erased easing expectations, pivoting toward an active probability of a Fed rate hike by December 2026 — a complete reversal of the two-to-three cuts that were priced before the Iran escalation. Warsh's arrival sets a new, potentially more austere tone for policy.

Equity markets are also digesting a structural liquidity test: SpaceX's $75bn capital call and a confidential OpenAI IPO filing represent a major real-time challenge to public market depth and risk appetite.

Looking Ahead

Asia is leading the way into the week. The Nikkei hit all-time highs on Monday (+3%), with Japan's PM Takaichi confirming the supplementary budget will not require additional bond issuance — a relief for JGB markets. Singapore Q1 GDP came in at a stellar 6.0% y/y, well ahead of consensus. However, profit-taking has emerged in Tokyo this morning (−0.4%), while Hang Seng (+0.2%), China A50 (+0.2%), and KOSPI (+3.4%) are holding gains.

The key macro events this week: Australian CPI and the RBNZ Rate Decision (Wednesday/Thursday, with a hike largely priced), Tokyo CPI Thursday evening, and US & Canadian GDP as the headline North American data points. German CPI closes out the week in Europe.

The overriding trade, however, is still geopolitical. Watch the US-Iran peace process closely. Any confirmed entente would be the single biggest catalyst for markets this week. Any breakdown, and the energy inflation channel reopens sharply.

WTI is currently at ~$95.96. The next 48 hours will tell us whether the peace premium holds.

Disclaimer information

THIS ARTICLE DOES NOT CONSTITUTE ANY FORM OF ADVICE OR RECOMMENDATION AND IS NOT INTENDED TO BE RELIED UPON IN MAKING ANY INVESTMENT DECISIONS. Curation is an information service provided by Curation Corporation. Liability Your investments are your responsibility. No liability whatsoever is accepted by Curation Corporation Limited or any Curation Corporation company of their respective directors, officers, employees or analysts for any loss, whether direct, indirect, special, incidental or consequential, arising whether directly or indirectly as a result of the recipient acting or not acting on any information in any Curation publication, including, without limitation, lost profits arising from the use of the Curation service or any of its publications. We have no liability for any loss of profit, loss of revenue, loss of business, business interruption, loss of opportunity or any indirect, special or consequential loss; any losses which arise from any event beyond our reasonable control; any losses which could not reasonably have been anticipated; or your inability to access and/or use the Curation service or the website. We do not exclude or limit in any way our liability to you where it would be unlawful to do so. Disclaimer Curation publications are provided for general information purposes only and should not be regarded as an offer, solicitation, invitation, inducement or recommendation relating to the subscription, purchase or sale of any security or other financial instrument or investment. This document does not constitute, and should not be interpreted as, investment advice. You must carry out your own independent research and obtain suitable professional advice before making any investment decision. The Curation publications do not take the specific needs, investment objectives and financial situation of any particular individual into consideration and we cannot state whether any investment mentioned is suitable for you. You should not base any investment decision solely on the basis of the information we publish or provide to you. Always be aware of market risks, never invest money you cannot afford to lose. All investments can go down as well as up. Investing in securities entails risks. Potential Conflicts of Interest Curation or its respective directors, officers, employees, contributors and clients may have or take positions in the securities, entities or investments mentioned in the Curation publications. Any of these circumstances could create, or be perceived as creating, conflicts of interest. Privacy and Registration All information received from you and your use of the Curation service and the website will be used by Curation Corporation Limited in accordance with our Privacy Policy. Please read this for details of how we may process your personal data. On registration for the Curation service, you must provide us with accurate, complete registration information and it is your responsibility to update and maintain changes to your information. Curation, a trading name of Curation Corporation Limited, is entitled to rely on any information you provide to us. Read our full T&Cs, disclaimers and privacy notice. Contact us at info@curationcorp.com , Curation Corporation Limited, 42-46 Princelet St, London, E1 5LP, UK