Daily Market Outlook, May 12, 2026 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Oil, AI Taxes and UK Politics Hit the Tape

Risk appetite has declined as the Iran ceasefire story continues to deteriorate and Asia loses the clean AI-led bid that carried markets last week. Brent is back around $105/bbl, up 0.6%, after Trump described the ceasefire as being on “massive life support”, keeping the Strait of Hormuz risk premium embedded in energy prices. That is again feeding through to rates, with the 10-year Treasury yield up 1bp to 4.42%, while the Dollar is firmer across G10 on haven demand and higher-for-longer inflation concerns. MSCI Asia Pacific fell 0.4%, European equity futures point to a weaker open, and US futures are lower after Wall Street’s record close on Monday — not a disorderly unwind, but a clear test of how much geopolitical risk record markets can absorb.

Korea was the overnight pressure point. The Kospi dropped 3.1% after presidential policy chief Kim Yong-beom suggested the country should consider a resident dividend funded by taxes on AI-related revenues. The market reaction was swift because Korea has become one of the purest global plays on AI capex, semiconductors and memory pricing; introducing profit redistribution into that narrative forces investors to rethink the after-tax earnings upside. The details remain unclear, but the direction of travel matters: when AI optimism is responsible for a disproportionate share of market leadership, even tentative policy risk around AI profits can hit multiples. The absence of Nvidia from Trump’s Beijing delegation also adds a political edge to the coming US-China summit, where trade and Iran are expected to dominate.

UK assets face a separate political stress test. Press reports suggest today’s cabinet meeting could become a direct challenge to Starmer, with some ministers reportedly joining backbench calls for him to stand down. Prediction markets now price an 87% probability that he is out by year-end, and Sterling has already slipped roughly a cent against the Dollar to around 1.3573. Gilts underperformed yesterday, so some of the political risk is in the price, but the broader issue is duration: a leadership contest could drag on for weeks or months, just as long-dated gilt yields sit well above the post-BoE independence pre-GFC equilibrium range. With trend growth lower than in that period, higher financing costs risk becoming a genuine tightening in financial conditions, particularly if investors lose visibility on fiscal strategy under a potential new PM.

The UK data flow offered little immediate offset. The BRC reported April like-for-like retail sales down 3.4% y/y, though Easter timing makes the annual comparison messy given Good Friday fell into March for the purposes of this year’s report. ONS retail values still show a healthier three-month-smoothed picture for now, but a confidence hit from higher energy prices and Middle East uncertainty is plausible. Elsewhere, Japan delivered a hawkish nuance: the BoJ’s April meeting summary showed some board members still open to raising rates soon despite geopolitical uncertainty. That matters for global duration because the oil shock is not only a growth risk; it is also keeping inflation pressure alive. The market is no longer trading a single AI-upside story — it is now juggling oil risk, policy risk around AI profits, UK political instability and a less forgiving rates backdrop.

Overnight Headlines

• German ZEW Investors' Mood Seen Darkening Further In May

• Middle East Tensions Keep US Inflation Running Hot

• Trump Says US-Iran Ceasefire On ‘Massive Life Support’

• Iran Says It Has Deployed Mini Subs In Contest To Control Hormuz

• US Sanctions Twelve Entities For Sales Of Iranian Oil To China

• Trump Seriously Considering Resuming Combat Operations

• Trump To Meet Xi Thursday For High-Stakes US-China Summit

• China Investors Bet Xi-Trump Meet To Extend Trade-Detente Rally

• US Asks To Keep Collecting Trump’s New Tariffs After Court Loss

• Warsh’s Fed Nomination Clears First In Series Of Senate Votes

• Some In BoJ Saw Need To Raise Rates Soon, April Summary Shows

• Japan’s 10-Year Bond Sale Demand Stronger Than 12-Month Average

• Japan FinMin Katayama Says Coordinating With Bessent On FX Policy

• Central Banks Tap Most Yuan Swap Lines With PBoC In Two Years

• UK Cabinet Ministers Tell PM Starmer To Consider His Position

• Microsoft Targeted $92B Return On Early OpenAI Investment

FX Options Expiries For 10am New York Cut 

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

• EUR/USD: 1.1750 (EU1.79b), 1.1785 (EU1.4b), 1.1700 (EU1.37b)

• USD/JPY: 156.00 ($1.46b), 156.50 ($1.09b), 154.00 ($611m)

• AUD/USD: 0.6825 (AUD617m), 0.7080 (AUD471m), 0.7070 (AUD442m)

• USD/BRL: 4.9000 ($1.14b), 5.0000 ($385m), 4.8000 ($300m)

• USD/CAD: 1.3795 ($320.3m)

• USD/CNY: 6.8000 ($350m), 6.7700 ($300m)

• GBP/USD: 1.3495 (GBP375m)

• EUR/GBP: 0.8635 (EU348m)

CFTC Positions as of May 8, 2026: 

• Equity fund speculators have made some notable adjustments recently, reducing their net short position in the S&P 500 CME by 6,871 contracts, bringing the total down to 389,571. Meanwhile, equity fund managers are feeling more optimistic, increasing their net long position in the S&P 500 CME by 14,772 contracts, now totaling 1,013,955.

• In the realm of Treasury futures, speculators have also been active. They've cut their net short positions in CBOT US 5-year Treasury futures by a significant 100,106 contracts, now standing at 1,421,299. The CBOT US 10-year Treasury futures saw a reduction of 23,868 contracts in net short positions, which now sits at 815,269. The CBOT US 2-year Treasury futures experienced a trim of 35,934 contracts, leaving a net short position of 1,673,329. Additionally, speculators reduced their net short position in CBOT US UltraBond Treasury futures by 34,850 contracts to a total of 259,435. However, there was an increase in the net short position for CBOT US Treasury bonds futures by 59,287 contracts, bringing it to 172,942.

• In the cryptocurrency market, Bitcoin's net long position has reached 1,441 contracts. 

• On the currency front, the Swiss franc has a net short position of -34,521 contracts, while the British pound's net short position is -63,908 contracts. The euro is showing strength with a net long position of 32,202 contracts, whereas the Japanese yen holds a net short position of -61,738 contracts.

Technical & Trade Views

SP500

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 7300 Target 7430

• Below 7290 Target 7200

DXY

• Daily VWAP Bullish

• Weekly VWAP Bearish

• Above 98.85 Target 99.50

• Below 98.50 Target 96.12

EURUSD 

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 1.1785 Target 1.18.50

• Below 1.1690 Target 1.16

GBPUSD 

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 1.3445 Target 1.3885

• Below 1.34 Target 1.3320

USDJPY 

• Daily VWAP Bullish

• Weekly VWAP Bearish

• Above 160 Target 161

• Below 159 Target 152

XAUUSD

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 4600 Target 5000

• Below 42700 Target 3600

BTCUSD 

• Daily VWAP Bullish

• Weekly VWAP Bullish

• Above 79k Target 86k

• Below 78k Target 76k