Overview of Market Movement
US equity markets ended Wednesday slightly in the red, despite a positive surprise in the latest inflation data. The S&P 500 and Nasdaq edged lower as investors digested mixed global signals, including softer-than-expected consumer prices and escalating geopolitical tensions in the Middle East.
Inflation Data Brings Some Relief
Recent inflation data offered a glimmer of hope for investors looking for signs of moderating price pressures. Below, we explore the key components of the May report and its broader implications.
Core and Headline CPI Signals
The May Consumer Price Index (CPI) rose by just 0.1% month-on-month and 2.4% year-on-year, both coming in below consensus estimates. The core CPI, which strips out volatile food and energy prices, also posted minimal gains, suggesting that rising input costs are not yet being transferred to consumers in a meaningful way. This easing in inflation provided some reassurance that price pressures are moderating.
Impact on Federal Reserve Expectations
The subdued inflation report led to a notable drop in short-term bond yields, as markets priced in a more dovish outlook for US monetary policy. However, persistent geopolitical risks—particularly involving the US and Iran—prompted a flight to safety, limiting market gains and contributing to a rally in oil prices. A partial evacuation of the US embassy in Iraq further boosted demand for safe-haven assets.
Sector Performance and Trade Developments
While broader market sentiment was subdued, certain sectors stood out. Trade negotiations and oil dynamics added further layers of complexity to the day’s trading environment.
Energy Outperforms as Oil Spikes
Sector-wise, energy stocks bucked the downward trend thanks to a surge in crude oil prices. Most other sectors in the S&P 500 ended the day flat or lower, as investor sentiment remained cautious.
Renewed Optimism in US-China Trade Talks
Progress in US-China trade negotiations offered a silver lining. A new framework under discussion includes a potential agreement to ease export controls in exchange for greater Chinese access to rare earth minerals. While still awaiting formal approval from both President Trump and President Xi, the development signaled a move toward reduced trade friction and reinforced the recent trend of easing trade tensions.
Global Markets React Cautiously
Investors worldwide responded differently to the latest combination of macroeconomic signals, inflation reports, and geopolitical uncertainties.
Asian markets were mixed on Thursday, reflecting regional volatility and varying investor sentiment. Japan’s Nikkei and TOPIX fell, while South Korea’s KOSPI hit a 3½-year high, driven by political optimism. Australia’s ASX 200 also saw modest gains, led by energy and mining shares.
European markets also ended lower, with the Stoxx 50 down 1% and the Stoxx 600 declining by 0.3%, weighed down by losses in the retail sector, particularly for Inditex, which dropped 4.4% on weak sales data. Conversely, autos and basic resources sectors saw modest gains, helped by optimism surrounding the US-China trade developments.
Currency and Commodities Update
Market sentiment around currencies and commodities shifted as inflation figures and geopolitical risks played out in parallel.
Dollar Weakens as Rate Cut Bets Grow
The US dollar index slipped below 98.5, approaching its lowest point since early 2022. The euro strengthened significantly, with EUR/USD reaching a seven-week high at 1.1511, bolstered by expectations of a potential Fed rate cut later this year and general dollar weakness.
Oil Prices Stabilize After Rally
Following a sharp rally on Middle East tensions, oil prices eased modestly in Asian trading. Brent and WTI futures both declined around 0.4% as markets balanced geopolitical risks with the potential easing of US-China trade hostilities.
Corporate Highlights
Several companies made headlines driven by earnings, M&A activity, government contracts, and sectoral trends.
Oracle, Papa John’s, and Quantum Tech Stocks in Focus
Oracle surged over 7% in after-hours trading after strong Q4 earnings and a revised growth outlook for fiscal 2026, driven by demand for cloud and AI services. The company posted quarterly revenue of $15.9 billion, beating estimates, with cloud services and license support revenue rising 14% to $11.7 billion.
Papa John’s jumped 7.5% amid a buyout offer from Apollo Global Management and Irth Capital, valuing the chain at over $60 per share. The move is part of a strategy to enhance performance away from public markets.
Quantum computing firms gained after Nvidia CEO Jensen Huang declared the technology is at an “inflection point,” reversing earlier views that commercial adoption was decades away.
Other Noteworthy Movers
- Inditex fell 4.4% on weak quarterly sales, affected by tariff-related trade tensions, inflation, and a rainy spring in Spain. However, the company remains confident in stable 2025 growth margins and plans to expand its Lefties and Oysho brands, targeting Gen Z.
- Lockheed Martin dropped 6% after the US Air Force halved its F-35 procurement to 24 aircraft, with budget cuts reducing funding to $3.5 billion. Navy and Marine Corps orders were also trimmed, though Congress may still revise the allocations.
- Oklo Inc gained 27.5% after winning a Department of Defense contract to deploy its Aurora nuclear reactor at Eielson Air Force Base. Centrus Energy rose 7.1% on its HALEU fuel supply deal for Oklo’s operations.
- OpenAI is in talks with Saudi Arabia’s Public Investment Fund, India’s Reliance Industries, and investor MGX for a $40 billion fundraising round, including potential hundreds of millions in contributions. The funds would support its $500 billion Project Stargate, a massive AI infrastructure initiative in the US with SoftBank as a partner.
- CoreWeave secured a major role in Google’s partnership with OpenAI, providing GPU cloud computing services to be resold through Google Cloud. This diversifies CoreWeave’s revenue and supports Google’s competitiveness against Amazon and Microsoft, which is reassessing its data center strategy.
- Starbucks is evaluating the sale of a stake in its China business, its second-largest market. Interested buyers reportedly include KKR, Fountainvest Partners, and PAG, as the company aims to grow its footprint from 8,000 to 20,000 stores.
- UniCredit CEO Andrea Orcel ruled out a near-term merger with Commerzbank, citing high valuation and German government resistance. He also questioned the feasibility of acquiring Banco BPM, citing Italy’s “golden powers” and regulatory challenges.
- Stifel initiated coverage on Uber with a “Buy” rating and a $110 price target, calling it a super app with long-term upside through rides, delivery, and ads. DoorDash also received praise, but was noted as fairly valued.
- Kepler Cheuvreux upgraded Bayer to “Buy” with a €33 price target, highlighting improved legal clarity and stronger earnings forecasts through 2027.
- UBS downgraded Deutsche Boerse to “Neutral” from “Buy,” citing limited upside and a balanced risk-reward profile, with a €309 price target.
- Jefferies named Glencore a top pick with 31% upside to 380p, citing value from potential spin-offs, strong cash flow, and 2025 earnings recovery.
Macro Outlook and Events Ahead
Looking ahead, markets will closely monitor upcoming US economic data, including core and headline Producer Price Index (PPI) reports and weekly jobless claims. Key corporate earnings releases include Adobe and Tesco.
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Meanwhile, President Trump plans to send tariff letters to major trade partners within two weeks, ahead of a 9 July deadline. However, Treasury Secretary Bessent indicated that tariff pauses may be extended for countries negotiating in good faith, while the proposed US–China trade framework remains under review.
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