Global equity markets came under significant pressure on Wednesday as a combination of accelerating US inflation and renewed military escalation between the United States and Iran drove investors away from risk assets. The sell-off was broad-based, with US indices leading losses, Asian markets following suit overnight, and European equities closing in the red ahead of a key European Central Bank policy decision.
US equities: sharp declines led by technology
US equity markets endured a difficult session on Wednesday, with both the S&P 500 and the Nasdaq bearing the brunt of a wide-ranging sell-off.
Market performance
The S&P 500 fell 1.6% and the Nasdaq declined 2.0%, with technology shares leading the retreat. The losses reflected a confluence of two major catalysts: a hotter-than-expected US consumer price inflation reading and an escalation in US-Iran military hostilities.
President Trump warned that further military action against Iran could follow if a peace agreement is not reached, heightening concerns over global energy supply stability. The prospect of a prolonged conflict around the Strait of Hormuz added to already elevated uncertainty, prompting portfolio rebalancing away from high-valuation risk assets.
Inflation data and Fed implications
US headline consumer price inflation accelerated to 4.2% year-on-year in May, its fastest pace since April 2023. The primary driver was a surge in energy prices linked directly to supply disruptions stemming from the US-Iran conflict. Core inflation, which strips out food and energy, rose to 2.9% annually, remaining comparatively contained, though still above the Federal Reserve’s 2% target.
The inflation print materially reduced expectations for near-term Federal Reserve interest rate cuts. Markets now broadly anticipate the Fed will maintain its current policy stance for an extended period and may even tighten further if price pressures do not ease. US Treasury yields rose in response, reflecting the repricing of rate expectations, while the energy price spike compounded broader cost-of-living concerns.
Global and regional markets update
The risk-off sentiment that gripped Wall Street rapidly spread across global equity markets, with Asian and European bourses both closing lower.
Asian equities
Asian markets declined sharply on Thursday as investors digested the weakness in US markets alongside the geopolitical escalation. The MSCI Asia-Pacific ex-Japan Index fell 0.9%, with South Korea’s KOSPI registering a steeper 3.0% drop. Technology-heavy indices were particularly exposed, given elevated valuations and the heightened risk environment.
European equities
European equities also closed lower on Wednesday, with the STOXX 50 shedding 0.4%. Investor caution was heightened ahead of the European Central Bank’s scheduled policy decision, with rate-sensitive sectors bearing the brunt of the selling. Technology stocks led declines, with STMicroelectronics edging lower despite a broker upgrade, though the losses were more contained than those seen on Wall Street. Expectations for continued ECB monetary tightening kept pressure on growth-sensitive areas of the market.
Currencies and commodities
US dollar and EUR/USD
The US dollar index held near 100, close to a two-month high, underpinned by safe-haven demand following the US strikes on Iran and ongoing disruption to Strait of Hormuz shipping. Higher inflation expectations and elevated energy costs further supported the greenback. Against the euro, the dollar pulled back slightly, with EUR/USD trading at 1.1547, reflecting some divergence in monetary policy expectations between the Fed and the ECB.
Crude oil
Crude oil prices climbed above $95 per barrel in Asian trading after the resumption of US strikes on Iran and reports that Iran had closed the Strait of Hormuz, raising acute concerns about global supply. Prices later retreated toward $91 per barrel as the initial military phase concluded and diplomatic signals emerged pointing toward potential peace negotiations. A drawdown of 7.2 million barrels in US crude inventories provided further fundamental support to the market.
Individual stock movers
The following companies experienced notable moves in their share prices, driven by earnings results, analyst commentary, or corporate news.
Oracle shares fell more than 10% in after-hours trading despite reporting stronger-than-expected quarterly earnings and raising its full-year profit guidance. Investors focused on the company’s plan to raise US$40 billion in financing during fiscal 2027 to support AI infrastructure and data centre expansion, renewing concerns about borrowing levels and capital spending requirements.
Amazon secured a $17.5 billion loan from major banks to fund AI infrastructure development. The delayed-draw facility gives the company flexible access to capital as Big Tech AI spending accelerates, with sector-wide capital expenditure now expected to surpass $700 billion for the full year.
OpenAI is reportedly considering significant price cuts for its AI services as competition with Anthropic intensifies. The proposed cuts are aimed at lowering token pricing to attract enterprise clients, though any reduction could increase competitive pressure and weigh on profit margins as both firms continue investing heavily in AI infrastructure.
SpaceX has reportedly attracted multibillion-dollar commitments from Gulf sovereign wealth funds, including Saudi Arabia’s PIF and Kuwait’s KIA, alongside expected participation from Qatar’s QIA. The $135 per share pricing for its IPO reflects strong global investor demand, with Elon Musk’s company targeting a valuation of approximately $1.8 trillion.
SK Hynix shares advanced after reports surfaced of expanded wafer capacity plans, boosting sentiment across South Korean semiconductor stocks amid robust AI-driven demand for HBM chips. The company is also reportedly planning a US ADR listing as early as August that could raise up to $14 billion, with SEC approval anticipated in June.
TSMC reported a 30.1% year-on-year rise in May revenue, sustained by strong demand for advanced AI chips from key customers including Nvidia and Apple. Year-to-date revenue growth of 30% underscored continued momentum in advanced-node semiconductor manufacturing despite broader global trade uncertainty.
Analyst commentary
Market participants continued to receive a steady flow of institutional research notes, with several major banks adjusting their outlooks in response to the evolving macro environment.
Barclays argued that European equities retain relative resilience even in a scenario where the AI-driven trade continues to unwind, despite expected ECB rate hikes. The bank cited stronger balance sheets, supportive positioning, and more attractive valuations compared to US counterparts. Banks, energy, and mining are viewed as the sectors best positioned to benefit from higher interest rates, while a less aggressive ECB could provide a tailwind for small-caps and consumer-oriented stocks.
Bank of America maintained its bearish view on the euro, highlighting widening growth divergence between the US and the eurozone, stronger-than-expected US economic data, and the risk of a more hawkish Federal Reserve. The bank continues to favour selling EUR/USD rallies and expects energy-related cost pressures to weigh on eurozone economic performance, despite expectations of further ECB rate increases.
UBS projected that the global semiconductor market will reach $2.38 trillion by 2027, driven by agentic AI applications boosting demand across memory, logic, and CPU segments. The bank favours wafer fabrication equipment and AI logic stocks, with preferred names including Applied Materials, ASML, Micron, Samsung, SK Hynix, TSMC, and Texas Instruments.
Barclays raised price targets and earnings forecasts for Applied Materials, KLA, and Lam Research, reflecting a more robust semiconductor capital expenditure cycle. The bank now expects the wafer fabrication equipment market to exceed $200 billion by 2027, driven by accelerating investment in DRAM, NAND, and leading-edge production. It cautioned that current valuations already reflect 2028 earnings expectations.
Barclays also projected that European defence spending will rise sharply to $752.6 billion by 2035, driven by NATO rearmament commitments, with Germany, Poland, and Eastern European nations leading the increase. Rheinmetall and Leonardo were identified as preferred names within what the bank characterises as a European defence super-cycle.
RBC upgraded Adidas to “outperform” and raised its price target to €210, citing strong operational execution, an attractive valuation, and leading earnings growth among European consumer discretionary peers. The broker expects continued revenue and margin expansion supported by market share gains and consistent guidance beats, arguing the stock’s growth potential is not fully recognised.
RBC downgraded Nike to Sector Perform from Outperform and reduced its price target to $50 from $70, citing a slower-than-anticipated business turnaround and a lack of near-term catalysts. The broker flagged ongoing market share losses, inventory challenges, and weak wholesale demand as persistent challenges.
Goldman Sachs trimmed its margin and EBIT forecasts for SAP ahead of the company’s second-quarter results, citing higher hardware costs and a customer ramp-down. The bank retained its Buy rating, however, pointing to intact AI-driven cloud growth and strong pipeline momentum as reasons for continued long-term confidence.
Bank of America upgraded STMicroelectronics to Buy, arguing the market is underestimating the company’s earnings potential over the next two to three years. The bank highlighted growth opportunities in optical interconnects, low Earth orbit satellites, and recovering industrial demand, alongside the prospect of operating leverage from spare manufacturing capacity.
Piper Sandler initiated coverage of SharkNinja with an Overweight rating and a $150 price target. The broker cited strong product innovation, expanding advertising capabilities, and growing direct-to-consumer revenues as key drivers, projecting double-digit sales and earnings per share growth supported by category expansion, international market development, and margin-accretive business segments, with share buybacks supporting returns.
Upcoming economic events and data releases
The ECB interest rate decision is due today, with markets expecting the policy rate at 2.4% and the deposit facility rate at 2.25%. An ECB press conference will follow, likely providing guidance on the future rate path in light of persistent eurozone inflation and geopolitical energy risks.
US Producer Price Index (PPI) data is also scheduled, with core PPI expected at 5.4% year-on-year, which could reinforce or moderate the inflation narrative established by yesterday’s CPI reading.
US jobless claims will offer an update on labour market conditions, while mortgage rates will be watched for signals of consumer stress as borrowing costs remain elevated.
On the corporate earnings front, results are expected from Adobe, Lennar, RH, and Dollarama. US bond auctions and a Federal Reserve balance sheet update will also be in focus.
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