Last week, the S&P 500, NASDAQ and Dow all hit fresh records as US tech giants posted new records in kind on the back of big headlines about big deals.
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Apple and Intel inked a new partnership on the microchip front, AMD‘s share price positively surged, and even NVIDIA chief Huang’s trip to China managed to spark some excitement.
Then, on Friday, Wall Street closed red; and that’s inspired a probable dip on the ASX for Monday. Suddenly, there’s a lot of headlines about US inflation, and the general vibe has palpably shifted to one of caution in the space of one trading day.
What happened?
Inflation pressures at home
While Trump and Xi Jinping were busy having a diplomacy-off in China last week, the US Government released the country’s latest CPI data. Long story short, it’s at +3.8% – on the way up. That’s never a good thing in this post-COVID era.
But it got worse. Because after the US released CPI data last week, it then came out with Producer Price Index (PPI) data for April – the cost of making stuff and providing services in the US – and the news there is even worse.
Using that inflation gauge, which is widely perceived as a kind of future indicator of what the next CPI will be, PPI inflation (“wholesale”) in the US climbed +6% in the twelve months to April 2026.
So that’s two big datapoints (and one can’t be taken without the other) explaining why there’s some nerves afoot in the US starting to show.
Trump-Xi falls flat; no change in Iran
There’s also that whole Trump-and-Xi meeting. Long story short, the market was quite hopeful that the US and China could broker some kind of step forward in the ongoing war with Iran, given China is a major ally with Iran.
As far as we can tell, it didn’t really come up between the two leaders in any meaningful sense.
Over the weekend, Trump continued to posture as militaristically adversarial on Truth Social, and Australia has woken up on Monday morning to fresh headlines about new threats from the Trump Administration around Iran being on a “deadline” to comply with ceasefire proposals.
Long story short: the Iran war is set to continue. You don’t need headlines to know that, just look at the Brent Crude price.
Fed rate hikes spur bond sell-off
So, rising inflation expected to get worse due to high oil prices in the US, and no meaningful signal that oil prices will come down anytime soon.
That was enough to kick off a wave of profit-taking on Wall Street on Friday, namely drawing down from the big tech giants, as traders and investors alike sought to capture gains rather than potentially lose them through Week 21 if the bad news bears remain too loud to ignore.
Not that America isn’t excellent at divorcing itself from economic reality, but it’s perhaps the most alarming signal of all when Wall Street does act in response to economic data.
And all of these factors added together have led to increased bets the US Federal Reserve will hike rates next month. That implies strength for the USD, which went up late last week and also likely sucked some momentum out of US stocks.
But in the face of all this, US 10Y bond yields also jumped to 4.6% as bond investors sold off to some extent, which is typically seen as a signal from stock markets of inflation risk. So that isn’t helping sentiment either. The 30Y bond yield is also at a 12 month high.
As for what’s likely to happen, well, nobody knows. That’s another problem. It’s complicated. Both those who would like to see the Federal Reserve cut rate are nervous, but so are those who want the Fed to raise rates.
Trump adversary Fed Reserve chief Jerome Powell walked out the door last week, his tenure is over and now Trump-pick Kevin Warsh heads the Federal Reserve. Nobody really knows what’s he’s going to do: abide by what the data’s telling him and hike rates, or, act as a Trump loyalist and cut them (or ignore the data and keep them flat.)
At any rate, it’s uncertain – and that’s what the market hates most.
The good news is that NVIDIA reports this week, and that tends to be a joyous affair. But many are thinking that cracks in the US story are starting to show.
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