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12 May 2026 | 3 minutes to read
Investors are focusing on strong company earnings rather than fractured geopolitics ahead of presidents Trump and Xi meeting in Beijing later this week. Earnings per share (EPS) estimates continue to see upward revisions and at a higher and faster rate than in the mid-90s or late internet bubble years. Back then, hype drove share prices higher despite earnings forecasts not keeping apace. Today, it’s arguably the opposite, with investors appearing relatively restrained while eyeing earnings growth nearing record highs. For example, the S&P 500 consensus for EPS growth in 2026 is around 18%, compared to nearer 15% at the start of the year. The growth is also broadening in the US. Buoyed by optimism, many equity indices – including the S&P 500, Nasdaq, South Korea and China – hit all-time highs last week.
Meanwhile, progress has seemingly stalled over a peace deal in the Iran war. President Xi may have some leverage over Iran. And whilst the US and China are decoupling in trade, neither wants significant economic disruption. Iran and tariffs will be two of the hot topics when the presidents meet.
The US Court of International Trade delivered another blow to President Trump’s flagship trade policy, declaring that he unlawfully used Section 122 of the Trade Act of 1974 to impose a 10% global tariff rate. This was already an alternative conduit, after Trump’s more sweeping ‘Liberation Day’ tariffs had been struck down by the US Supreme Court earlier this year. The Supreme Court ruled the president could not issue tariffs using emergency economic powers. The US administration has already had to begin processing tariff levy refunds after this ruling, with more than $160bn ordered to be refunded to importers.
The Court of International Trade did not suspend the 10% tariffs issued under the Trade Act of 1974 universally, rather it barred the US administration from collecting duties from Washington state and the two companies which brought the case. However, it will set a precedent for other companies, paving the way for further court challenges. For now, the tariffs will remain in place for other parties while an appeal process plays out. Section 122 of the act allows the president to impose tariffs up to 15% for 150 days to address large balance-of-payments deficits, but the US Court of International Trade ruled that it was not an appropriate step for addressing long-running trade deficits. The Trump administration is likely to seek alternative means through which to impose tariffs.
Just ahead of the latest court ruling, Trump had threatened to impose ‘much higher’ tariffs on the European Union (EU) if the bloc did not drop its levies on the US to zero by 4 July. A trade deal had been struck by the US and the EU last year, but the required ratification by all 27 EU member states has yet to be finalised. Negotiators are set to meet for further talks on 19 May.
UK Prime Minister Keir Starmer vowed to face down potential leadership challenges, after the governing Labour Party suffered notable losses in local and devolved parliament elections last week. The right-wing Reform UK party gained significant ground, both in local councils in England and in the devolved parliaments of Scotland and Wales. However, left-leaning, pro-independence parties won the most seats in both the Scottish and Welsh parliaments. The result in Wales overturned decades of Labour rule.
UK government gilt yields, or borrowing costs, touched multi-decade highs just ahead of the vote. The political uncertainty compounding wider unease over inflation pressures stemming from the on-going impasse in the Middle East. The political concern is that a government less committed to fiscal discipline could emerge if Starmer was deposed. However, pressures eased a little by the end of the week, as the prime minister insisted he would not step down. The 10-year gilt yield ended the week at around 4.92%, having earlier touched 5.10%.
Should Starmer and Chancellor Rachel Reeves survive, increasing the pace of economic reform to face down unrest within the Labour party – and deliver tangible improvements for an electorate frustrated by stagnating living standards – will not be straightforward. Rising prices, coupled with economic and political constraints, mean that implementing pro-growth policies will be tough. Starmer began by appointing former Prime Minister Gordon Brown as Special Envoy on Global Finance and Cooperation. The Cabinet Office stated that Brown’s role would be to develop new partnerships to support defence and security-related investment, including measures that underpin the UK’s relationship with Europe.
UK private sector activity – The S&P Composite Purchasing Managers Index for the UK rose further into expansionary territory in April. A reading of 52.6 – with any reading above 50 indicating expansion – suggests stronger activity across both manufacturing and services. Some of the increase in client orders could be down to frontloading amid concerns over potential supply disruption
Australian central bank raises rates again – The Reserve Bank of Australia increased interest rates to 4.35% from 4.1%, marking the third consecutive hike this year, as policymakers respond to inflationary pressures – particularly from higher fuel costs
US consumer sentiment hits record low – The University of Michigan’s consumer sentiment index fell to a record low of 48.2 in early May, reflecting growing concerns around the cost of living among US households
US energy exports – US oil and refined product exports climbed to a record high of 14.2 million barrels per day, according to the Energy Information Administration. Europe and Asia have increased reliance on American energy supplies amid disruptions in the Middle East
Russian oil revenues surge – Russian oil revenues nearly doubled from $9.7bn in February to $19bn in March, according to the International Energy Agency. The increase was driven by the largest-ever monthly gain in oil prices as a result of the Iran war
Anthropic reports unprecedented growth – Artificial Intelligence (AI) firm Anthropic reported exceptionally rapid growth, saying it saw revenue and usage grow 80-fold on annualised basis in the first quarter of 2026. Annualised revenue reportedly reached $30bn as demand accelerated for AI applications in coding, cybersecurity and enterprise adoption
AI boom drive memory chip profits higher – Memory chip manufacturers continue to benefit from surging AI demand, particularly for high-bandwidth memory chips used in data centres. Projections suggest the sector could earn more than $550bn by the end of 2026, as strong pricing, supply constraints and long-term contracts are supporting further sector growth
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