Financial Markets Attempt Rebound from War-Related Monday Difficulties
May 5, 2026
Monday saw an escalations of Middle East hostilities, with U.S. forces claiming to have successfully escorted a few ships out of the Strait of Hormuz and Iran attacking facilities in the U.A.E. and promising retaliation for the U.S. actions. Tuesday’s big question is whether the ceasefire first imposed on April 8th will continue to hold. Investors are also awaiting some U.S. economic data due shortly and absorbing the news of a third Australian central bank interest rate hike since February.
In overnight currency trading, the dollar is unchanged against the euro, Swiss franc, sterling and both Canadian and Australian dollars. The U.S. currency recouped 0.3% versus the Japanese yen but lost that amount versus the Mexican peso. Record lows were approached in the Indian rupee (95.45 per dollar) and Indonesian rupiah (17,455 per dollar). The Swiss currency, in contrast, hovered closed to its peak of 0.7634 per dollar set earlier this year.
Tuesday has seen holiday closures in Japan and South Korea for Children’s Day and in China for the final day of the May Day holiday. Elsewhere in the Pacific Rim, share prices fell 0.8% in Hong Kong, 0.5% in New Zealand and 0.2% in Australia but rose 1.2% in Indonesia and 0.2% in Taiwan. Whereas equities are so far higher in Germany, Spain, Italy and France, the British FTSE has fallen 1.2% so far ahead of tomorrow’s local elections with opinion polls suggesting significant likely losses for the ruling Labour Party. Likewise, the ten-year British Gilt yield has jumped 13 basis points in contrast to unchanged comparable yields in the U.S. and Germany and dips of 1 or 2 basis points in France, Italy, Spain, Switzerland and Australia.
Yesterday’s sharp rise in the price of oil has given way to a 1.6% in the price of West Texas Intermediate crude to a level just slightly under $105 per barrel. Gold and silver prices are moderately higher. Bitcoin’s price is up 1.3% and, at around $80.8k, hovering near the midpoint of its wide year-to-date range between $63,327 and $96,151.
After three straight 25-basis point increases of the Reserve Bank of Australia‘s Official Cash Rate, the rate level of 4.35% is back to this decade’s high maintained from November 2023 until February 2025 and matches the otherwise most restrictive level since early 2011. Australian consumer price inflation of 4.7% stands at a 30-month high. A statement from the RBA explains,
Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly. This inflation impulse is in addition to the high inflation recorded around the start of 2026, reflecting capacity pressures in the economy.
While there was one vote in the 8-1 decision that favored keeping the OCR at the prior 4.10% level due to concern that the economy may slow more sharply than anticipated, “the Board assessed that inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations.” Future interest rate decisions are to be data dependent, which suggests that more hikes are a better that even bet since the baseline scenario assumes the war ends comparatively soon. The challenge of balancing the upside inflation risks against slowing economic activity is hardly unique to Australia’s central bank.
There was also a central bank interest rate decision today made at the Central Bank of Armenia, where officials erred on the side of an expected softening of growth and left their policy rate unchanged at 6.5%. It’s been at that level since December and compares with a former cyclical peak of 10.75% that prevailed from December 2022 until June 2023. Armenian CPI inflation had been as low as 3.1% in November but has subsequently climbed to 4.5% in March, a three-year high.
U.S. building permits in March dived 10.8% to a 7-month low, reversing most of February’s increase. The U.S. goods and services trade deficit in March printed at a 3-month high of $60.3 billion, resulting in a first-quarter gap of $172.8 billion, down from a deficit of $384 billion in the first quarter of 2025.
April non-oil purchasing manager indices printed at a 39-month low of 46.6 in Egypt, a 62-month low of 52.1 in the United Arab Emirates and a 2-month high of 56.5 in Saudi Arabia (but well below that countries 11-year high of 60.2 just two months earlier).
Australia’s composite PMI for April was revised 0.3 index points higher to a 2-month high of 50.4. The 50.7 reading for the service sector purchasing managers index was also at a 2-month high, while Thailand’s manufacturing PMI score of 52.7 last month was at a 3-month low. Among these few PMI results, only Egypt’s was below the 50 level that separates improving from deteriorating economic conditions.
In Hong Kong, real GDP far outpaced expectations last quarter, jumping 2.9% on quarter and lifting the year-on-year growth rate to a 19-quarter high of 5.9%. By contrast, GDP contracted 0.8% in Indonesia, but that fall was marginally less than projected and enabled growth compared to a year earlier to edge 0.2 percentage points higher to 5.6%, which also exceeds average growth in 2025 of 5.1% by half a percentage point.
Price data reported today showcases that spreading impact of the Middle Eastern war.
- Consumer prices on the Philippines leaped 2.6% on month in April, lifting the 12-month rate of increase to 7.2% from 4.1% in March and just 0.9% last July. At 7.2%, Filipino inflation is not far from the crest of 8.7% early in 2023.
- Serbia experienced a 38-month high in producer price inflation last month of 7.3%, up from -0.3% as recently as January.
- In Romania, producer price inflation swung to a 2-month high of 7.0% in March from an 8-month low of 3.0% in February, but that not all that country’s bad news today. After a vote of no confidence, the government has collapsed.
Canada’s trade balance in March unexpectedly swung to a C$ 1.78 billion surplus in March from a C$ 5.11 billion deficit the month before, as exports jumped 8.5% while imports slid by 1.6%.
A 358k drop in U.S. job openings during February exceeded expectations.
Still to come: U.S. and Canadian composite and service sector purchasing manager survey results.
Copyright 2026, Larry Greenberg. All rights reserved.
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