The Two Weeks That Will Be (17th May 2026)
1. Nvidia
With stock markets ever more disconnected from the oncoming stagflationary tsunami, the latest earnings from MAG7 and geopolitical bellwether Nvidia on Wednesday will bear even more weight than usual. Not only is it an indication of momentum for the apparently unstoppable AI train but it is also a litmus test for US/China relations, given Air Force One picked up CEO Jensen Huang in Alaska en route to the Trump/Xi summit in Beijing.
By virtue of its market capitalisation, Nvidia is also a key component of volatility trading on the S&P500. Option traders can manage their exposures through the correlation (or otherwise) of big single stocks to the full market index (and vice versa). All of which means that when Nvidia moves, the ramifications can be widespread.
We are in a pivotal moment for the global price of risk. Yields on government bonds are at multi-decade highs even as the S&P500 keeps printing record highs, and not because we are powering into a huge global economic boom. Quite the reverse. The supply shock emanating from the Strait of Hormuz will further disequilibrate the AI juggernaut. Capacity constraints on the production of semiconductor chips had already raised concerns that demand could not be met. Now the rising price, if not complete shortage, of energy has created an almost intractable physical problem.
But financial markets are almost metaphysical, powered by delta hedging as much as by fundamental probabilities. And the future expected direction of markets has been captured by one simple mantra since last year’s Liberation Day reversal: Don’t Get Caught Short. We have therefore seen not only a breathtaking rally in the spot price of stocks but also in the gamma exposure of the market. This long term chart from SqueezeMetrics shows the last two weeks have seen one of the sharpest ever reversals from negative to positive gamma:
And whilst positive gamma tends to be positive for the S&P500 as it dampens volatility, you will note that the last time we saw such violent moves up – and down – in gamma was during the pandemic. We are moving into an unstable equilibrium.
2. The US
Into this environment we have a US President returning bullish from the trip to see his Chinese strongman counterpart. Trump warned on Truth Social that “For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!”. The FIFA World Cup and Trump’s 80th birthday are now just under one month away and the world’s greatest showman needs some sort of win, and soon. Military action looks set to increase in the short term.
In such an environment, the US data becomes largely backward looking, given even higher oil prices are likely ahead. The FOMC Minutes on Wednesday will be an historic artefact, the last rites of the Powell Fed.
3. The UK
With financial markets precariously perched on dizzying valuations and escalation threat rising in the Middle East, there is one clear certainty: UK political risk is rising.
The Black Knight Sir Keir Starmer might claim it is just a flesh wound to have suffered almost one quarter of his MPs and five of his ministers calling for him to depart and to have this echoed by all 11 Labour-affiliated trade unions. But it is now terminal. Starmer is not just resting. The role of Prime Minister has ceased to be. Whatever happens in the wake of the pivotal Makerfield by-election on 18th June 2026, the government will not be the same.
Until then, we have a Schrodinger’s government, ostensibly led by the occupants of Number 10 and 11 Downing Street but probabalistically determined by the next residents. What is the price of a Gilt under Andy Burnham’s plan for nationalisations or Louise Haigh’s call to “re-examine the mandate of the Bank of England”? And when the price adjusts lower to reflect these possibilities, who has the authority to push back? The market will now pay more attention to the Mayor of Greater Manchester, the Energy Secretary and a backbench former Health Secretary than the actual Chancellor.
Into this fractricidal chaos there will be Gilt auctions on Tuesday, Thursday, Wednesday 27th May and Thursday 28th May. Higher yields had been attracting considerable demand. We will find out if it is enough to meet ongoing issuance with the latest PSNBR data on Friday.
