Global inflation figures present a mixed picture, with the Eurozone's headline CPI at 3.2% in May and core inflation rising to 2.5%, prompting discussions of a potential European Central Bank rate hike. In contrast, US core CPI also exceeded forecasts at 2.5%, while Australia's inflation gauge fell significantly to -0.3% in May. Other economic indicators include a rise in US private payrolls by 122,000 and an increase in Canada's composite PMI to 52.3. Brazil's oil production reached a record 4.334 million barrels per day in April, and Germany's retail sales saw a smaller-than-expected decline.

Global inflation concerns are prompting central banks to signal further interest rate hikes, with the European Central Bank (ECB) indicating potential open-ended increases due to rising price pressures from conflicts and global factors. The Bank of Japan (BOJ) is also signaling a shift towards fighting inflation, with market expectations for a June rate hike. In the U.S., Federal Reserve officials are debating policy stances, with some suggesting rates may need to rise if inflation persists, while others note current policy is "a bit loose." Research suggests central banks might prioritize inflation over employment in future oil shocks. Meanwhile, Eurozone manufacturing shows slowing growth with rising input costs, and retail sales fell in April, though consumer inflation expectations remain steady.

Global economic activity shows mixed signals in May, with services sectors in Canada and Singapore expanding while the UK and Eurozone experienced contractions. The US services sector saw a slowdown, with its PMI falling to 50.7, though the ISM Services Prices Index rose, indicating persistent cost pressures. In the US labor market, private payrolls increased by 122,000 jobs, exceeding expectations, while initial jobless claims rose to 225,000. Meanwhile, Egypt's non-oil private sector contracted amid surging costs, and the Eurozone faces a potential GDP decline.

Gold has surpassed U.S. Treasuries as the world's leading reserve asset, holding 27% of global reserves by the end of 2025, according to the European Central Bank. This shift is attributed to a significant price rally and central bank diversification away from the U.S. dollar, driven by geopolitical tensions. Meanwhile, Eurozone business activity contracted in May due to surging inflation, with the manufacturing PMI falling to 51.6. In emerging markets, Senegal's eurobonds have become the worst performers, while traders are increasingly bullish on the Chinese yuan, reaching a 15-year high in optimism due to its expanding global usage and attractive valuation. Australia's economy was dragged down in Q1 by surging imports, widening its current account deficit.

Central banks globally are signaling potential shifts in monetary policy amid persistent inflation and economic data releases. The Bank of Japan is expected to raise interest rates in June, with traders pricing in high odds for a hike. Similarly, European Central Bank policymakers indicate a strong likelihood of a rate increase at their upcoming meeting. Meanwhile, the U.S. Federal Reserve may abandon its easing bias, with key economic data like CPI and Non-Farm Payrolls due. The Reserve Bank of Australia is monitoring the impact of higher rates and energy shocks, while the People's Bank of China continues to set its yuan reference rate.

The Japanese yen is hovering near the critical 160 per dollar level, prompting warnings from Japanese officials and raising the specter of market intervention. This weakening comes amid renewed Middle East hostilities, which have boosted demand for the U.S. dollar and driven up crude oil prices. While the dollar has slipped from a two-month high due to growing optimism for a Lebanon ceasefire, it remains firm against the yen. Meanwhile, Japanese bond yields have reached 40-year highs, and a former Bank of Japan policymaker warns of stagnation risks without an early rate hike.

US equities have risen for a ninth consecutive week, fueled by AI sector growth and hopes for a US-Iran truce, despite some valuation concerns. Global stocks showed mixed performance, with Wall Street indices trading unevenly as AI optimism contended with Middle East tensions. In Australia, the economy slowed but was supported by data center investment. US factory orders saw a significant 4.8% jump in April, primarily due to commercial aircraft orders, while Q1 worker productivity growth was revised down to 0.3% with unit labor costs rising 1.8%. Gold prices experienced a slight decline in May, down less than 2%, but remain up 5% year-to-date. The Bank of Canada cautioned against over-reliance on GDP data, noting potential rebounds despite contractionary periods.

The Federal Reserve has decided to hold its benchmark interest rate steady at 5.25%-5.50%, signaling only one potential rate cut for 2024, a decrease from previous projections due to persistent inflation concerns. Meanwhile, India's economy is expected to have grown at a 7.2% pace in the January-March quarter, driven by government spending and agriculture, despite softer external demand. Indian money markets have seen record turnover as banks increase borrowing to meet strong credit demand, with nearly two-thirds of loans now priced below 9%, potentially pressuring bank margins. The Reserve Bank of India also cautioned banks about emerging risks like geopolitics and AI, while the government considers spending curbs to meet fiscal deficit targets.

The U.S. economy shows mixed signals as private payrolls increased by 122,000 in May, exceeding forecasts, while consumer sentiment fell to 42.5 in June, marking the tenth consecutive month below neutral. Retail sales, however, accelerated, with the Redbook Index up 9.0% year-over-year in late May. Meanwhile, the Atlanta Fed's GDPNow model forecasts Q2 real GDP growth at 3.0%, a decrease from previous estimates. In Canada, the economy has entered a technical recession, which Prime Minister Mark Carney attributes to policies addressing U.S. tariffs. India's industrial production rose 4.9% in April, surpassing expectations.

China's central bank has absorbed excess cash by reducing its daily open-market operations to a record low, coinciding with a bond rally that has pushed benchmark yields to their lowest point since August. This development occurs amidst broader market volatility, with significant shifts observed in bond markets across China, Italy, and Germany. Meanwhile, Italy's 30-year government bond yield spread over Germany's has widened, signaling increased borrowing costs for Italy. In a separate but related context, Asia's central banks face pressure to tighten monetary policy due to rising inflation concerns fueled by an energy crunch and AI boom, while China's extensive industrial subsidies continue to reshape the global economy and pose risks to international trade.

Despite widespread consumer pessimism and a "trust recession" marked by reduced spending, AI stocks are surging, indicating a bifurcated economy. While 73% of Americans are cutting nonessential purchases and 51% feel financially conflicted, the labor market remains resilient with low unemployment and wage growth, though hiring is slowing. Farmers also report weakened sentiment, falling to 119 in May. Bank of England Governor Andrew Bailey anticipates slower growth rather than a recession, while Bank of America notes a divergence between two key US employment surveys.

The world faces an 80% chance of an El Niño event developing between June and August, potentially driving record global temperatures and extreme weather, according to the UN weather agency. This follows a record-breaking spring in England and Wales, with large areas of the Atlantic and Mediterranean oceans already 5°C hotter than average. Forecasters predict a warmer, drier summer with increased heatwave likelihood in the UK and persistent drought in the US West and Mid-Atlantic, while some southern US regions may see drought improvement. Experts also link El Niño to increased Atlantic wind shear.

Zambia has launched a tender offer to buy back $1.36 billion of its debt as part of its ongoing financial restructuring efforts. However, a group of bondholders holding debt maturing in 2053 have rejected the offer, claiming it was made without negotiation and would harm investor interests. The country now plans to negotiate with these bondholders after the buyback attempt was blocked. This comes as Zambia's current account shifted to a surplus of $396.4 million in Q1 2026, an improvement from a deficit the previous year, largely due to strong copper exports.

Inflation cooled in May as indicated by US CPI data, with the Consumer Price Index rising less than anticipated, potentially influencing Federal Reserve policy. Meanwhile, weather patterns are significantly altered by a Canadian weather block, causing cold and dry conditions in New England and pleasant weather in Florida. Central Florida anticipates storms on Tuesday before a mid-week drop in humidity, while Milwaukee saw a wet April followed by a dry May. Washington D.C. recorded below-normal temperatures and rainfall in May, its first cooler-than-average month since February, as a high-pressure system brings sunshine to the region.

Sea surface temperatures in the equatorial Pacific are warming, nearing El Niño conditions with the Niño 3.4 index at +0.5°C, though this is behind 1997 levels. Meanwhile, a separate GLAAM tendency is driving U.S. heat, intermittently disrupted by El Niño precipitation. In economic news, rural debt defaults hit a record high at the end of 2025, and Itaú revised its Selic rate forecast to 13.75% and the 2026 IPCA inflation projection to 5.4%.

Central banks globally are grappling with persistent inflation, with several policymakers emphasizing the need to maintain public confidence in their ability to meet targets. The European Central Bank (ECB) sees a prolonged Middle East conflict as a risk to inflation, potentially leading to second-round effects on wages and other sectors, reinforcing expectations of a June rate hike. Meanwhile, the International Monetary Fund (IMF) highlights the importance of central bank independence in managing inflation amid geopolitical risks, particularly in the Middle East and Central Asia. In Australia, the Reserve Bank of Australia (RBA) observes that rate hikes are impacting housing prices, though current inflation is still influenced by oil and commodity costs. The Bank of England (BoE) stresses the importance of returning inflation to its 2% target, and South Africa's central bank governor pledges to lower inflation to its 3% target.

India's central bank, the RBI, faces a complex interest rate decision this week, grappling with a depreciating rupee, rising inflation risks, and concerns about economic growth. The rupee has hit record lows, partly due to a Middle East energy shock and rising oil prices stemming from regional tensions. While a rate hike could bolster the currency, inflation remains below target, presenting a dilemma. Traders are closely monitoring the upcoming monetary policy announcement, with the rupee expected to trade within a narrow range in the short term.

U.S. Treasury yields have seen mixed movements, with some retreating from highs due to strong jobs data supporting potential Federal Reserve rate hikes, while others, like the 10-year and 30-year benchmarks, hit multi-month lows. German 2-year bond yields also fell to 2.59% at auction. Municipal bonds remained largely flat, contrasting with the "cheapening" of U.S. Treasuries. Investors are reassessing Federal Reserve policy in light of economic resilience, with retail investors reportedly distracted by the stock market.

Global economic forecasts indicate a challenging outlook, with the OECD predicting the Bank of England will hold rates through 2024 before cuts in 2027, citing a weak UK jobs market and energy shock. France's manufacturing sector contracted in May due to supply chain issues and rising costs, while Swiss watch exports fell in April. Norway's central bank has also lowered its growth forecast for 2024 and 2025, attributing the slowdown to weaker global demand and higher interest rates. In the UK, the budget watchdog will now factor persistent inflation into its fiscal planning.

Egypt's remittance inflows reached a record USD 5.5 billion in March, a 62% year-on-year increase, according to the central bank. This surge, attributed to currency reforms that eliminated the black market, has bolstered the Egyptian pound amidst capital flight. Meanwhile, Saudi commercial banks' claims on the private sector grew 7.2% to SAR 3.23 trillion by April, driven by personal and trade loans, leading to tighter liquidity. In Serbia, the budget deficit widened by 27.8% to RSD 99.6 billion in January-April, with expenditures rising faster than revenues. US stocks declined, potentially due to an anticipated increase in equity supply from IPOs and divestments, breaking a recent rally. South Africa's rand has recovered as a top carry trade performer following a surge in bond inflows.