The Monday Report – 18 May 2026

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This story features ALCOA CORPORATION, and other companies.
For more info SHARE ANALYSIS: AAI
The company is included in ASX200, ASX300 and ALL-ORDS

Higher oil prices and rising bond yields took the shine off of risk assets, with European and US markets losing ground on Friday.

Still no resolution to the Iran war and the closure of the Strait of Hormuz remains an overhang.

Nvidia reports earnings on May 20; a big one for market sentiment around the AI-trade.

After another decline in the Australian market last week, ASX200 futures are pointing to a soft follow-through into the new week.

Good Morning,

The ASX200 finished -113 points or -0.13% lower last week at 8630 for its fourth week of declines in the past five.

As the graph near the bottom of today’s report shows, the Australian market has now retreated 15 sessions out of the past twenty.

The latest fall occurred against an already challenging backdrop of regular profit warnings, the lingering effects of the RBA’s rate-hiking cycle, and ongoing fuel-security concerns.

These pressures were compounded by last week’s Federal Budget, which included several investor-unfriendly tax changes, plus a disappointing trading update from CommBank ((CBA)).

Tony Sycamore, IG

On the calendar today we find ALS Ltd ((ALQ)), Elders ((ELD)), Gentrack Group ((GTK)) and New Hope Corp ((NHC)).

For more details https://fnarena.com/index.php/financial-news/calendar/

Today’s Big Picture, J.L. Bernstein

The 30-Year Just Cracked 5.1

The 30-year Treasury yield closed above 5.1, the highest in nearly twenty years.

The bigger tell was the inflation-adjusted yield on the 10-year (basically the real cost of borrowing after stripping inflation out), which jumped to 2.05.

When that number rises, two things happen. Companies pay more to finance everything from buybacks to new factories.

And stocks priced on years of future growth lose their math advantage against safer bonds.

Today wasn’t an inflation panic. It was traders accepting that money is going to cost more for a while.

The Summit Was A Dud

Two days, sixteen US executives in the room, and what came out was a 200-jet Boeing order (about half what the market wanted) and a vague promise to keep the Strait of Hormuz open.

No tariff cuts. No chip deal for Nvidia. Trump even told reporters the Nvidia sale “didn’t come up.”

Wall Street walked in expecting concrete deals and walked out with photos.

Traders Now Bet The Fed Hikes, Not Cuts

A week ago, the bond market expected the Fed to cut interest rates this year.

Today, traders are pricing in a 51 chance the Fed actually raises them at the December meeting.

That’s a complete reversal in seven days, driven by oil sitting above US$100 and four straight days of inflation data coming in too hot.

Powell hands the keys to Kevin Warsh on Monday.

Warsh has historically pushed for tighter policy, and his first public comments could move the bond market by themselves.

NAB Markets Today Research, extract

Risk appetite was weaker as equity markets reacted unfavourably to rising long end sovereign bond yields. 10-year and 30-year government bonds sold off sharply on Friday’s session, with the market starting to worry about the inflationary impact of the Middle East crisis.

UST 10-year bond yield rose 12bps to 4.59%, and Japanese 30-year bond yield closed the session just over 4%, its highest level since Japan started issuing sovereign debt in the very long end of the curve (in 1999). 

The UK market saw a particularly nasty yield rise, as concerns over the fiscal outlook coincided with inflationary worries. 30-year Gilt yield is now 5.8% and 10-year Gilt yield rose 17bps.

The bond market sell-off has prompted comments from both the Japanese Finance Minister and the US Treasury Secretary that G7 Finance ministers will be discussing the topic of rising government bond yields at the upcoming G7 Finance Ministers’ meeting this week.

The Australian bond market was not immune from the bear steepening dynamic, with 3-year and 10-year bond futures declining. The futures curve steepened to plus-38bp, sitting at its highest level since mid-March.

The moves in bond yields came alongside a rise in the oil price. Brent crude rose 3% and traded above to US$109 a barrel. Prices extended gains after US President Trump’s meeting with Chinese leader Xi Jinping failed to offer any meaningful indication of progress on increasing energy flows through the Strait of Hormuz.

The lack of concrete measures deepened concerns that disruptions to global supply could worsen as inventories are drawn down.

US economic data had limited market impact but nonetheless shows the manufacturing sector continues to perform well. Industrial production rose 0.7% in April, well above consensus. The Empire State manufacturing index rose to 19.6 in May from up 11.0, also beating the consensus estimate. 

In a significant turnaround from just a month or two ago, the US market is now pricing around 16bp of Fed tightening by year-end. That pricing had increased during Asian trade and was little changed following the releases.

As noted earlier, equity markets were lower, with longer-duration growth stocks not faring well amid the sell-off in sovereign bond markets. The Nasdaq was down -1.5% and the S&P500 fell -1.2%.

Sector-wise, it was the energy complex that out-performed, generating a 2.2% rally over the session. Across the Atlantic, European bourses registered slightly larger declines, with the EuroStoxx50 down -1.8%, the Dax off -2.0% and the FTSE100 down -1.7%.

In FX markets, the US dollar gained in Asian trade on Friday as risk assets softened. It was marginally firmer against the major currencies into the weekly close, while NZD and AUD underperformed.

Japan’s renewed yen weakness has heightened the risk of further official intervention, with USD/JPY trading towards 158.80 on Friday night. 

Elevated oil prices, broad US dollar strength, Middle East tensions, and the wide Japan-US interest rate gap are all weighing on the yen.

With little sign of easing geopolitical stress and the Bank of Japan not due to meet until mid-June, market participants will be attuned for any further intervention particularly on a move towards 160.

USD/JPY has opened a little lower this morning relative to Friday night’s close, but this is unlikely to do much to ameliorate concerns.

The Fragility of the US Growth Construct, Longview Economics, Chris Watling

There are a number of conundrums at the heart of the US economic outlook which are confounding economic forecasters and market watchers:

i) Why has the US economy and private consumption growth remained robust in recent quarters (2.5% Q2 2025 q-o-q saar, 3.5% in Q3, 1.9% Q4 & 1.6% Q1 2026) despite the sharp slowdown in real personal disposable income (latest monthly growth rate was 0.4% in March, and weak job creation?

ii) Why are US corporate sector margins at record high levels? Are they sustainable? Or is it a concern given that US stock market valuations are also at record highs (i.e. the stock market is trading on peak valuation multiples based on peak margins)?

iii) Why is US job creation so weak, yet corporate profits growth so strong? Historically strong corporate profit growth has driven strong job creation as companies expand and invest in future growth. On the latest data, though, job creation is running at 0.08% Y-o-Y ( September 2025 data); 0.43% Y-o-Y on non-farm payrolls data (April); & 0.16% Y-o-Y (ADP, April data). In the past, though, a growing US economy would drive employment growth at around 1.0 – 1.5% per annum.

Various theories exist as to why all these conundrums are happening.

The AI theme, though, sits at the heart of them all.

1.Record high corporate margins have been driven almost entirely by AI and AI related themes/companies.

2.The lack of employment growth reflects the concentration of profit growth in a small (tech/AI related) part of the economy. The strength of growth in the tech related part of the economy has crowded out much of the rest of the economy (e.g. like housing). That has created challenges for the ‘bottom half of the K’ (i.e. the bottom half of the income scale).

Outside of tech, according to FactSet data, there’s been no meaningful growth in profits (or margins) since 2022.

Within tech (and AI related themes) revenues, profits and margins have all performed well (reaching new record highs in all 3 cases).

Employment levels at the major US tech companies (the drivers of those record profits) have, though, barely increased (i.e. only modest increases in the sizes of their workforces in recent years). Elsewhere employment growth has been, at best, tepid (at worst, non-existent).

3. Robust consumption and GDP growth have been driven by the growth in spending of the top income groups in the US (coupled with strong AI related capex spending). The lower income groups have struggled as real incomes have been squeezed. Spending by the top deciles has been underpinned by a strong stock market (i.e. a wealth effect). In turn, that stock market wealth effect has been driven by strong AI related profits growth.

In other words, all roads lead back to the AI theme.

Conclusion: Whilst belief in the AI theme persists, the fragility (or perhaps, more accurately, the narrowness) of this current US economic growth phase shouldn’t become an issue.

Once the theme is questioned (in some way, e.g. a question over its longer-term profitability outlook), though, there’s a danger of a self-reinforcing downward negative feedback loop kicking in, as the stock market falls – and, in turn, undermines consumption and the economic growth outlook. That negative feedback loop would then be accentuated by the unwind of global over-exposure to US equities and high levels of speculation in the US stock market.

To be clear, we don’t think we are at that moment –-for all the reasons we’ve laid out in recent research-– so, for now, we remain ‘Strategically’ overweight risk assets (including US large and mid-cap equities).

This, though, remains a critical theme to watch closely.

At some stage (over next 1 – 3 years) a cyclical US equity bear market, and the start of a secular US bear market, will likely begin.

That, in our view, will probably be the most important asset allocation decision of the next 5 years for longer term investors.

A problematic inheritance for the new Fed chair, Oxford Economics 

• The incoming Fed chair, Kevin Warsh, faces an inhospitable landscape for a rate cut that President Trump hoped he would facilitate sooner rather than later. Fresh data showed that inflation accelerated markedly in April, extending a trend underway even before the war-induced oil price surge added another jolt. Against that backdrop, the newly confirmed Fed Chair heads into his first policy meeting on June 16-17 with essentially no cover to cut rates — and a deep interest in how he will communicate that message without raising the ire of the president.
• The consumer, for now, is holding the line. Retail sales posted a solid gain in April, and real consumer spending is tracking a sturdy growth rate in the second quarter. But the pillars that have supported that resilience — pandemic-era stimulus, outsized wage growth, wealth effects from rising asset prices — are eroding. For the first time in three years, real average hourly earnings turned negative on a year-over-year basis, a warning sign that the spending durability many have taken for granted may be on borrowed time.
• The labor market, still historically tight, offers a partial offset — but also a potential new risk. With unemployment barely above 4 percent and available labor shrinking, workers may soon push harder for wage increases to recoup lost purchasing power, raising the specter of a wage-price spiral. The more benign scenario that we see unfolding has post-war inflation gradually receding while a resilient job market keeps wages firm, eventually restoring a balanced growth/inflation outlook. But the conditions for the Fed to move toward lower rates are unlikely to be in place before year-end.

Corporate news in Australia:

-Chris Ellison sold -1.75m shares ($122.5m) in Mineral Resources ((MIN)) sending shares down -8% on Friday

-Flight Centre ((FLT)) has received shareholder approval to sell its Pedal Group stake for $61.7m

-Zinc is planning a $200m raise to launch a new low cost airline to compete with Qantas Airways ((QAN)) and Virgin Australia ((VGN))

-GenusPlus Group ((GNP)) abandoning a planned equity raising after receiving investor backing for its MPC Kinetic acquisition

-Challenger Gold ((CEL)) is preparing a capital raise alongside a board overhaul led by Peter Marrone

-Tabcorp Holdings ((TAH)) is passing regulatory fine costs onto pubs and clubs through revised contract terms

-Electro Optic Systems ((EOS)) is planning an approximately $150m capital raising at around $8 per share

-Fortitude Investment Partners is expanding in fire services through a deal with FVS Services Group

-Hancock Prospecting and SQM to develop a $1bn lithium mine in WA with production targeted from 2028

-Telstra Group ((TLS)) is disputing spectrum pricing ahead of a key government licensing decision

-I-MED Radiology Network is considering an IPO or trade sale and appointing Zita Peach as chair

-Boman Group says it is struggling to identify suitable Australian AI investments despite funds under management reaching $1bn

-Westpac ((WBC)) and Macquarie Group ((MQG)) are tightening investor lending standards following negative gearing policy changes

-Criticism is emerging that Fortescue’s ((FMG)) $150m Indigenous heritage penalty is too weak 

On the calendar today:

-CH April CPI, PPI

-CH April Ind Prod’n

-CH April Unemployment

-US April Existing home sales

-ALCOA CORPORATION ((AAI)) ex-div 9.69c

-ALS LIMITED ((ALQ)) FY26 earnings report

-ELDERS LIMITED ((ELD)) 1H26 earnings report

-GENTRACK GROUP LIMITED ((GTK)) 1H26 earnings report

-MACQUARIE GROUP LIMITED ((MQG)) ex-div 420.00c (35%)

-NEW HOPE CORPORATION LIMITED ((NHC)) Qtrly Update

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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