Market Summary: US Inflation Reaccelerates to 3.8%, Semiconductor Stocks Falter

Key Takeaways

• US inflation accelerated sharply in April, with headline CPI rising to 3.8% y/y and core CPI to 2.8% y/y, reinforcing the “higher-for-longer” Federal Reserve narrative.
• Semiconductor stocks led a broad technology pullback, with the Philadelphia Semiconductor Index falling 3% as major chip names like Qualcomm and Intel faced aggressive profit-taking.
• The USD/JPY climbed toward the key 157.90 intervention risk zone, supported by rising US yields, although bearish RSI divergence indicates potential short-term exhaustion risks.

Top Macro Headlines

• US Consumer Prices Jump: Headline annual US CPI inflation rose to 3.8% y/y in April, the highest in three years, leading to negative real wage growth for the first time since 2023.
• Iran Peace Deal on 'Life Support': Hopes for a Middle East peace resolution are fading, causing oil prices to surge.
• Semiconductor Sector Sells Off: A 70% rally in chip stocks unraveled, with major declines in Qualcomm (-11.5%) and Intel (-7%).
• US and Japan Address FX Volatility: Officials from both countries agreed that excess foreign exchange volatility is undesirable amid a surging US dollar.
• Anthropic Share Transfer Rules Raise Doubts: New rules from AI giant Anthropic regarding share transfers have raised concerns about ownership rights ahead of its IPO.

Key Macro Themes

• Fed Rate Cut Bets Wiped Out: The inflation data has eliminated market expectations for Federal Reserve interest rate cuts this year.
• Political Pressures Stoking Global Yields: Concerns over potential borrowing increases under a new UK leader have driven long-term UK bond yields to their highest levels since 1998.
• Potential Froth Coming Off the AI Rally: The decline in semiconductor stocks suggests profit-taking in an overheated sector.

Global Market Impact

Equities

The S&P 500 fell 0.2%, and the Nasdaq 100 dropped 0.9%, primarily due to semiconductor stock declines. The Dow inched higher by 0.1%, while US healthcare stocks gained 2%.

Fixed Income

US Treasury yields surged 5 bps across the curve, reacting to inflation data, while UK 30-year yields reached their highest levels since 1998.

FX

The US Dollar rose broadly as rate cut expectations evaporated, with the Sterling falling 0.5% amid UK political uncertainty.

Commodities

Oil prices rebounded sharply, with WTI surging 4% to above $100/bbl, and Brent closing at $107.70/bbl.

Asia Pacific Impact

Stock Markets

Japan ended higher, but broader Asia declined, with South Korea's KOSPI down 2% following the semiconductor sell-off.

Currencies

The South Korean Won slumped 1% against the US Dollar, reflecting vulnerability to global energy shocks.

Economic Outlook

Focus shifts to the upcoming Trump-Xi Beijing summit, with investors seeking clarity on AI policies and trade relations amid rising inflation risks.

Top Economic Data/Events to Watch

• AU Wespac Consumer Confidence (May) - 9:30 am SGT
• Euro Zone Q1 GDP (Flash) & Industrial Production (Mar) - 5:00 pm SGT
• US Producer Price Inflation (Apr) - 8:30 pm SGT
• Asian Earnings Heavyweights: Tencent, Alibaba, Nissan, Softbank