Stable Market Minute - 18th May 2026: Iran Peace Deal Fades and Rate Cut Hopes Dim

A drone attack on a UAE nuclear site, fading Iran ceasefire hopes, and sticky global inflation dragged US equities lower on Friday. Here's what treasurers need to watch this week.

Key takeaways

• Oil near $111/barrel — the highest in some time — driven by renewed Middle East tensions and a drone attack on a UAE nuclear site.
• Iran ceasefire hopes have faded again; US and Israeli rhetoric is turning more aggressive, prolonging geopolitical risk premiums.
• Rate cut expectations are being scaled back globally as inflation repeatedly surprises to the upside — watch USD strength as a consequence.
• Trump's China visit produced no breakthrough, adding to risk-off sentiment that weighed on equities into the weekend.
• UK jobs data (07:00 tomorrow) is the headline domestic release; a rise in claimants is already priced in, but a larger miss could move GBP.
• Andy Burnham's comments offered mild reassurance on UK fiscal discipline, helping gilt markets stabilise slightly.

Friday Selloff: What Drove the Move

US markets had a difficult end to the week. The S&P 500 fell 1.5% on Friday, pulled lower by a combination of surging oil prices, fading hopes for Middle East de-escalation, and a reassessment of how quickly central banks will cut rates.

Oil jumped nearly 4% in a single session, pushing the price to just under $111 per barrel — the highest level seen for some time. For any business with meaningful energy costs or USD-denominated supply chains, that move deserves attention.

Iran Ceasefire Narrative Collapses Again

Over the weekend, a drone attack struck one of the UAE's nuclear sites. The rhetoric from the United States and Israel has turned noticeably more aggressive — echoing the tone seen several weeks ago, just before the previous ceasefire agreement began to unravel.

The practical effect is that risk assets are repricing geopolitical uncertainty upward. Markets had briefly priced in a degree of Middle East stability; that assumption is now being unwound. Until there is a credible and durable ceasefire, elevated oil prices are likely to persist.

Trump-China Talks Yield No Breakthrough

Trump's trip to China failed to produce any meaningful diplomatic progress. Markets had hoped for at least a signal of de-escalation on trade. The absence of a breakthrough added to Friday's negative sentiment, reinforcing the view that global trade uncertainty is not resolving quickly.

Rate Cut Expectations: Slimmer by the Week

The inflation picture continues to disappoint. The consensus view is that price pressures — not just in the US but globally — are coming in above expectations. The practical effect is that rate cut probabilities are shrinking. For some central banks, cuts that were once considered near-certain are now being pushed out materially or removed from near-term forecasts entirely.

US dollar strength followed directly from this repricing. A higher-for-longer rate environment supports USD, which in turn puts pressure on GBP and EUR cross rates. Treasurers managing currency exposure should factor this into their hedging assumptions.

UK Political Backdrop: Bond Markets Watch Andy Burnham

UK gilt markets calmed slightly after Andy Burnham told ITV that he had never claimed you could simply ignore the bond market. That comment has prompted some reassessment of whether Burnham — should he pursue national leadership — would represent a more fiscally disciplined position than markets had assumed.

The next by-election, scheduled for 18 June according to the BBC, is now a focal point. Results could shift perceptions of Labour's political direction and, by extension, the UK's fiscal credibility in the eyes of bond investors.

Key Data to Watch: UK Jobs and Canadian Inflation

Today is relatively light on scheduled data. The main event arrives tomorrow morning at 07:00 UK time: UK jobs figures. Forecasts point to around 163,000 job losses, with the unemployment data reflecting March conditions — there is a natural lag built in. The claimant count, however, is more current, covering April, and markets are pricing in a modest rise in claimants.

Canadian inflation data is also due tomorrow. Given the pressures building from rising energy costs, the figures will be watched for signs of how quickly cost increases are feeding through to consumer prices in a commodity-exposed economy.

Current Market Levels

As of this morning: GBP/USD is trading at 1.3374, EUR/USD at 1.1640, and GBP/EUR at 1.1490. Oil sits just under $111 per barrel. The USD strength narrative is visible across both major pairs, and the oil print is a meaningful input for inflation forecasts heading into this week's data releases.

Next steps

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