By Jamie McGeever
ORLANDO, Florida, May 12 (Reuters) – The S&P 500 and Nasdaq fell on Tuesday, dragged down by a sharp decline in semiconductors, while sentiment was also rattled by rebounding oil prices and stronger-than-expected U.S. inflation which both lifted bond yields.
In my column today, I look at the case for U.S. rate cuts this year. Rates traders have removed all easing bets and most economists have too, but some are still holding out. Here’s their argument.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. US consumer prices increase further in April
2. Hopes fade for Iran peace deal as Trump says ceasefire on ‘life support’
3. Investors say they want Trump and Xi to stay out of AI’s way
4. US, Japan agree excess FX volatility undesirable, Bessent says
5. Warsh’s red lines worry world finance: Mike Dolan
Today’s Key Market Moves
• STOCKS: Japan up but Asia ex-Japan down, KOSPI ends -2% after wild rollercoaster ride. Europe in the red. S&P 500 -0.2%, Nasdaq -0.7%. Dow inches higher.
• SECTORS/SHARES: Four S&P 500 sectors down, seven rise. Tech -1%, healthcare +2%. Qualcomm -11.5%. Intel -7%, SOX index -3%. UnitedHealth +3%.
• FX: Dollar rises broadly. Sterling -0.5%, Korean won -1%.
• BONDS: UK 30-year yield highest since 1998. U.S. yields +5 bps across the curve, 10-year auction is soft – big tail, low bid/cover.
• COMMODITIES/METALS: Oil rises, WTI +4% back above $100/bbl.
Today’s Talking Points
* 4, and core?
Headline annual U.S. CPI inflation rose to 3.8% in April, higher than expected and the highest in three years. This means real wage growth has turned negative for the first time since 2023 also. It looks like 4% – double the Fed’s target – will be hit soon, perhaps next month.
This is bad news for President Donald Trump, whose approval ratings are already low. For Fed officials, the key issue is whether this spills into core inflation. CIBC economists say this has begun, Morgan Stanley says passthrough remains limited.
* Keir pressure
If the U.S.-Iran ceasefire is on ‘life support’, so too is UK leader Keir Starmer’s prime ministership. After the ruling Labour Party suffering bruising defeats in local and devolved national elections last week, Starmer is defying calls to quit. But the calls, from within his own party, are getting louder.
Wary that any successor may increase borrowing and spending, long-term UK bond yields have surged to the highest since 1998, and sterling is the biggest decliner among major currencies on Tuesday. The pressure, political and market, is building.
* When the chips are down
Chip stocks slumped on Tuesday, with the Philadelphia Semiconductor index down as much as 6% before halving those losses by the close of play. What triggered it? Maybe pure froth – it was up 70% in six weeks – and South Korea’s KOSPI’s wild rollercoaster ride on Tuesday.
Meanwhile, AI giant Anthropic updated rules surrounding the buying and transfer of its shares, raising some doubt around ownership rights once the firm goes public. “Any sale or transfer of Anthropic stock, or any interest in Anthropic stock, that has not been approved by our Board of Directors is void and will not be recognized on our books and records.”
What could move markets tomorrow?
• Developments in the Middle East
• Energy market moves
• U.S. President Donald Trump arrives in Beijing for summit with China’s President Xi Jinping
• China’s Tencent and Alibaba reports earnings
• Australia wage growth (Q1)
• Japan earnings including Nissan, Sumitomo Mitsui and Softbank
• Japan trade, current account (March)
• Germany wholesale inflation (April)
• European Central Bank officials scheduled to speak include President Christine Lagarde, board member Philip Lane, supervisor Claudia Buch and Olli Rehn
• Euro zone GDP (Q1, flash)
• Euro zone industrial production (March)
• Bank of England’s Catherine Mann speaks
• U.S. Treasury sells $25 billion of 30-year notes at auction
• U.S. producer price inflation (April)
• U.S. Federal Reserve officials scheduled to speak include Boston Fed President Susan Collins, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan
• U.S. earnings include Cisco
Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever)
