LCI Monthly – What Shaped May 2026

Global Bond Markets: Spike, Retreat, and a Volatile Return to Square One

Government bond markets had a turbulent May. Long-term yields in the United States, Japan, the United Kingdom, and France spiked sharply in the first half of the month, driven by growing concerns over public debt, weak fiscal discipline, and renewed inflation fears. The common worry was that investors were increasingly unwilling to hold long-duration debt at existing yield levels.

The sell-off was amplified by disruptions in the Strait of Hormuz, which pushed energy prices higher and raised inflation expectations — particularly in energy-importing economies such as Japan and Germany. At the peak, the pressure looked broad, synchronized, and potentially self-reinforcing.

But the picture shifted decisively in the final weeks of May. As diplomacy around the Iran conflict accelerated and oil prices retreated sharply — Brent fell roughly 17% from its May highs — inflation fears eased with them. Yields pulled back across the board, and by month-end, long-term rates in most major markets had returned to levels close to where they stood at the end of April.

The episode was a reminder of how quickly sentiment can shift in bond markets. The underlying concerns — elevated public debt, fiscal pressures, and the risk of persistently above-target inflation — have not disappeared. But May ended calmer than it started, with yields having absorbed the shock and retraced the spike.

Nvidia Extends Its Dominance in the AI Boom

Nvidia has once again delivered exceptional financial results, reinforcing its position at the center of the global artificial intelligence boom. Quarterly revenue surged to a new record, driven by explosive demand for AI infrastructure, while profits more than tripled compared with the previous year. CEO Jensen Huang described the expansion of AI computing capacity as one of the largest infrastructure buildouts in history and argued that the era of AI agents is only beginning.

The company continues to benefit from enormous spending by major technology firms building AI data centres, where Nvidia's chips remain the industry standard. Investors were particularly encouraged by strong forward guidance, high profit margins, and plans for large share buybacks and higher dividends.

Despite growing competition, Nvidia has so far maintained its technological lead through rapid innovation and increasingly powerful chip platforms. At the same time, the company is seeking growth beyond large cloud providers, targeting corporations building their own AI systems as well as future applications such as robotics, autonomous vehicles, and intelligent machines.

One major uncertainty remains China, where geopolitical tensions and export restrictions continue to limit Nvidia's access to a crucial market.

SpaceX's Grand Visions and Fragile Finances

There is a striking contrast between Elon Musk's cosmic ambitions for SpaceX and the company's weak financial fundamentals ahead of its planned stock market listing. The IPO, which reportedly targets a valuation of between USD 1.75 trillion and USD 2 trillion, presents SpaceX not merely as a business, but as a mission to turn humanity into a multi-planetary civilisation. Musk describes goals such as building cities on Mars, mining asteroids, creating AI data centres in orbit, and harnessing solar energy in space to support future artificial intelligence systems.

The company argues that expanding beyond Earth is essential for humanity's long-term survival and positions itself as uniquely capable of building this infrastructure. These ideas support an enormous estimated market opportunity of USD 28.5 trillion.

However, behind these grand ambitions lies a much harsher financial reality: heavy debt, large annual losses, and a need for tens of billions in fresh capital. Investors would also have little influence, since Musk would retain overwhelming voting control. Investors should approach the offering with considerable caution.

Kevin Warsh Takes Over the Federal Reserve Under Political Pressure

Kevin Warsh has officially been sworn in as the new chair of the Federal Reserve, succeeding Jerome Powell at a particularly sensitive moment for US monetary policy. During the ceremony at the White House, President Donald Trump publicly stated that the central bank should remain independent, while also encouraging Warsh to follow his own judgment.

Warsh is considered more open to interest-rate cuts than his predecessor, although he has also argued for reducing the Federal Reserve's balance sheet. At the same time, he has expressed support for closer coordination between monetary policy and the government, raising concerns about political influence over the central bank.

The leadership change comes as inflation pressures are intensifying again, partly driven by higher energy prices linked to the conflict involving Iran. Some Federal Reserve officials have even discussed the possibility of future rate increases if inflation remains persistently above the 2% target.

The transition also follows years of tension between Trump and Powell, whom the president repeatedly criticised for not cutting rates aggressively enough. Against this backdrop, questions surrounding the independence of the Federal Reserve have become increasingly important. Warsh has nevertheless promised to make monetary policy decisions independently and rejected suggestions that he would act as a political proxy.

The 2026 Iran War and Oil Markets

The war between Iran and the US–Israel coalition began on 28 February 2026 and reshaped the Middle East over the spring. Its intense combat phase wound down in early May. Since then, the defining feature has not been open warfare but a fragile, Pakistan-mediated ceasefire that has held since early April — strained by sporadic late-May incidents, including limited US “self-defence” strikes, but not collapsing back into full-scale fighting.

Diplomacy accelerated in the final week of May. The US president said a broader agreement is “largely negotiated,” built on a first-phase memorandum with the harder issues — including Iran’s nuclear programme — pushed into a 30-to-60-day window. But the deal is not yet signed: the president is weighing a final decision while Iran disputes key terms, notably insisting the Strait of Hormuz stays under its own control. Markets are trading a likely-but-unconfirmed de-escalation.

The strait itself should not be described as normalising. Iran's effective closure of the waterway has been the central economic pressure point of the conflict, and it remains largely shut, with a US blockade on Iranian ports still in force. Reopening it is the most important — and still unresolved — term of the talks, not something already underway.

Oil stayed volatile but trended down on deal optimism. Brent ended May in the low $90s (~$91–92), down roughly 17% on the month — its steepest fall since 2020 — with WTI tracking from the mid-$90s toward ~$90. The swings were real: US strikes on 26 May briefly pushed Brent back near $100. But the month-end retreat was driven specifically by reports of a ceasefire extension and eased Hormuz restrictions — not a generic risk balance. The market is now pricing the odds of ending the war and reopening the strait, with recovery in flows likely to be gradual even if a deal holds.

The 2026 Mega-IPO Wave: Where Will the Money Come From?

Three of the most valuable private companies in history are heading for the public market within months of each other, and the numbers are difficult to grasp. SpaceX has filed for a listing reportedly targeting a valuation near $1.75 trillion, which would make it the largest IPO ever recorded. OpenAI is eyeing a fourth-quarter debut around the $1 trillion mark, and Anthropic is targeting October at roughly $900 billion, potentially raising upwards of $60 billion on its own.

To put the magnitude in context: total US IPO proceeds for all of 2025 were around $45 billion. Goldman Sachs projects 2026 could reach $160 billion — and that figure looks conservative once this trio is added. The combined fresh capital these three listings could absorb has been estimated at $200 billion or more.

This is where the interesting question for portfolios begins. New equity issuance does not create new money; it redirects existing capital. To fund allocations into SpaceX, OpenAI, and Anthropic, institutions will have to sell something else — and the most liquid source of that cash is the very basket of mega-cap technology names that has driven index returns for years.

The likely consequence is a rotation: capital draining out of today’s market leaders to feed tomorrow’s. Even investors who never touch a single IPO share could feel it as a headwind in the large-cap positions they already hold.

For long-term portfolios, the lesson is not to chase the listings, but to understand that this scale of issuance reshapes the whole market, not just the order book.

Pope Leo XIV Calls for Ethical Limits on Artificial Intelligence

In his first encyclical, Magnifica Humanitas (“Great Humanity”), Pope Leo XIV calls for strict ethical guidelines and effective oversight of artificial intelligence. He acknowledges AI’s potential benefits but warns that it could deepen inequality, manipulate information, influence democracy, and concentrate power in the hands of a few wealthy groups. The Pope stresses that AI must serve human dignity, moral values, and the common good — not the interests of a small elite.

He is especially critical of AI in warfare, arguing that autonomous weapons must never be allowed to make life-and-death decisions independently. Leo also warns about misinformation, deepfakes, and the growing ability of algorithms to shape opinions and behaviour. Throughout the document, he insists that technology can never replace human conscience, compassion, or moral judgment.