Stocks Fall, Oil And Rates Rise As Inflation "Roars Back"

US equity futures and bonds were lower as oil climbed, with a key inflation report showing the impacts of higher energy and supply disruptions stemming from the war in Iran. Stocks are poised to fall from all-time highs after the core CPI rose more than expected in April. As of 9:15am S&P futures ewere down 0.2% and Nasdaq futures dropped 0.7% as a slide in chipmakers and big tech names dragged down the market in early US hours. In premarket trading, all Mag 7 stocks were lower. Treasury two-year yields hovered near the highest since March. Tech’s underperformance followers a weaker APAC session with KOSPI’s biggest loss since early April after the govt hintedf at a potential tax on AI profits dubbed a ‘Citizen Dividend’; the index finished off its lows pointing to the dip buying potential of Semis as the market takes advantage of any price discount. US crude rose to around $101. Gold weaker and sitting just below $4,700/oz. Economic data slate includes weekly ADP employment change (8:15am), April CPI (8:30am) and federal budget balance (2pm). Fed speaker slate includes Chicago Fed’s Goolsbee (9:10am, 1pm), and NY Fed releases quarterly report on household debt and credit at 11am

In premarket trading, Mag 7 names are all lower (Tesla -1.5%, Alphabet -0.9%, Amazon -0.8%, Nvidia -0.8%, Microsoft -0.6%, Meta -0.5%, Apple -0.4%)

AST SpaceMobile (ASTS) falls 11% after the satellite internet company reported revenue for the first quarter that missed the average analyst estimate. The firm also had a wider loss than forecast.
GameStop (GME) slips 3% after eBay Inc. rejected a $56 billion takeover offer from the company.
GitLab (GTLB) is down 11% after the software company announced plans to cut jobs and make operational changes. Raymond James says efforts to retool the business while cutting staff may be challenging, while RBC says guidance for in-line 1Q results suggests no upside versus prior beats.
Harmonic (HLIT) rises 15% after the communications equipment company reported first-quarter results that beat expectations and gave an outlook that is seen as strong, underlining positive momentum.
Harrow (HROW) slumps 10% after the eyecare pharmaceutical firm posted an adjusted Ebitda loss for the quarter, disappointing analysts who’d forecasted a profit. The company also reported revenue for the first quarter that fell short of the average analyst estimate.
Hims & Hers Health (HIMS) slides 15% after the telehealth firm projected 2Q Ebitda that missed consensus estimate, a result of higher costs as it transitions to branded products.
IHeartMedia (IHRT) slips 4% after the media entertainment and radio broadcasting firm provided a disappointing forecast adjusted Ebitda for the second quarter.
Microvast Holdings Inc. (MVST) sinks 40% after the battery firm reported first-quarter revenue that fell short of the average analyst estimate.
PACS Group (PACS) soars 22% after the nursing home operator boosted its adjusted Ebitda guidance for the full year, following better-than-expected results for the first quarter. Truist views the quarter results as a strong start to the year.
Plug Power (PLUG) is up 7% after the hydrogen producer’s first-quarter net revenue beat the average analyst estimate, with analysts attributing the growth to large customers such as Amazon and Walmart.
Power Solutions International (PSIX) drops 31% after the engine and power systems manufacturer reported first-quarter revenue and income that fell short of analyst estimates and declined to give full-year guidance, citing variability in order timing and market conditions.
Quantum Computing Inc. (QUBT) jumps 24% after the application software developer reported revenue for the first quarter that beat the average analyst estimate.
Venture Global (VG) rises 8% after the liquefied natural gas company reported first-quarter earnings per share that beat the average analyst estimate and announced new deals with TotalEnergies and Vitol.
Webtoon (WBTN) slumps 10% after the storytelling technology platform gave a revenue forecast for the second quarter that missed the average analyst estimate.
Wendy’s (WEN) shares jump 23% as the Financial Times reports that Nelson Peltz’s Trian Fund Management is seeking investor backing for a bid to take the burger chain operator private.
ZoomInfo Technologies (GTM) slides 36% after the software company reduced its full-year forecast for adjusted operating income. The company also announced a restructuring program that will cut about 600 jobs.

In other corporate news, JPMorgan has seen balances within its prime-brokerage business soar to a record as clients look to seize on recent market volatility. Amazon.com has begun the sale of its first Swiss franc bonds as it looks to raise a record six-part deal in the currency.

Wall Street traders left stocks and bonds lower as oil climbed, with today's CPI report showing the impacts of higher energy and supply disruptions stemming from the war in Iran, resulting in hoter than expected core CPI prices: CPI rose 3.8% from a year earlier, marking the fastest pace since 2023. From a month earlier, prices were up 0.6%, while core prices rose 2.8%, higher than the 2.7% expected.

“Inflation is roaring back largely driven by stubbornly high oil prices,” said Skyler Weinand at Regan Capital. “As a result, we expect the Federal Reserve to be on hold through the summer on interest rates.”

Given that inflation is heading in the wrong direction and the labor market is holding up, it’s very unlikely that the Fed will be able to lower interest rates any time soon, according to Chris Zaccarelli at Northlight Asset Management.

“We don’t believe the market needs rate cuts to keep climbing, but earnings will need to keep doing a lot of the heavy lifting as multiple expansion isn’t in the cards right now,” he said. “The Fed has been clear that it is willing to look through any temporary inflation spike tied to the Iran conflict, and that remains the key consideration for investors in the near term,” according to Tim Urbanowicz at Innovator ETFs from Goldman Sachs Asset Management.

“Markets had already priced out rate cuts for 2026 heading into the report,” he said. “As long as the 10-year Treasury yield remains contained below 4.5%, we do not see these levels as a meaningful headwind for equities.”

The energy crisis’s impact on the global economy is showing up in gauges of supply-chain stress that soared during Covid. The US Strategic Petroleum Reserve released another wave of emergency oil to help tame surging prices stemming from the Iran war. A federal gasoline tax holiday proposed by Trump would result in billions of dollars in lost tax revenue each month.

Inflation isn't just in the broader market: AI also has an an inflation problem as highlighted by a Bloomberg article discussing how “chipflation” is crowding out supplies of more conventional semiconductors. Meanwhile, a top South Korean policymaker said the nation should pay citizens a “dividend” using taxes on AI profits, underscoring growing pressure to redistribute gains from a boom that’s enriched chipmakers like Samsung Electronics and SK Hynix.

Tech stocks are taking a breather under the weight of growing warnings that their unprecedented rally has run too far, while a suggestion to target AI profits in South Korea hasn’t helped sentiment either.

In politics, the Trump administration asked the US trade court to pause a ruling that declared the president’s latest 10% global tariffs unlawful while the government appeals. Japan’s Finance Minister confirmed that her team is coordinating closely with US Treasury Secretary Scott Bessent on currency policy, signaling tacit US approval of Japan’s recent suspected market intervention.

Investors are still holding onto short S&P 500 futures positions despite accumulating losses, with the average short entry ~6680 on the index, which raises short-covering risks and in turn could fuel a further melt-up in equities, according to Citigroup strategists.
Options markets are pricing in limited expectations ahead of the Trump-Xi meeting, leaving room for an outsized reaction, according to JPMorgan equity-derivatives strategists.

Global corporate earnings surged in the first quarter, according to Deutsche Bank strategists, marking the strongest growth in more than four years as demand tied to AI fueled a broad-based expansion.

European bourses are entirely in the red, with UK Banks hit on political turmoil; US equity futures pull back from ATHs. Energy is among the few rising sectors while retail, banks and technology are the worst performers. Stoxx 600 falls 0.8% to 607.95 with 440 members down, 149 up and 11 unchanged. Here are some of the biggest movers on Tuesday:

SES shares rallied as much as 9.7% to the highest since July 2022 after the satellite operator’s adjusted Ebitda for the first quarter came in well above expectations.
Greggs shares rise as much as 7.2%, the most in six months, after the UK high street baker revealed like-for-like growth has accelerated in recent weeks, partly thanks to new additions to the menu including its chicken roll, according to analysts.
SoftwareOne shares jump as much as 15% after the Swiss IT services firm posted a first-quarter earnings beat and raised its full-year revenue guidance.
Jenoptik surges as much as 16%, to a record high, after the optoelectronics group delivers what MP Capital Markets describes as a “blow-out” quarter.
Tecan shares rise as much as 6.2% after the maker of laboratory automation components reported growth in local currency sales during the first quarter and maintained its full year guidance.
Siemens Energy shares fall as much as 4.3% after the German renewable energy firm reported second-quarter results. While expanded share buybacks were seen as a positive, Bernstein highlighted weakening margins at the company’s gas unit.
Prosus shares slide as much as 7.6% after the tech investor released a trading update that Jefferies said shows the turnaround of Just Eat Takeaway.com is a longer-duration project than some will have expected.
Vodafone shares fall as much as 5.8%, the most since February, after the British telecommunications group reported its latest earnings, with analysts flagging a miss on Ebitda after leases.
KBC shares drop as much as 4.4% after the banking and insurance services provider reported profits that fell short of expectations after it raised provisions to their highest level since 2020.
Munich Re shares declined as much as 5.1% as the reinsurer reported weak P&C Re revenues, similar to peers.
Thyssenkrupp shares fall as much as 4.2%, before recouping most of those losses, after the German industrial technology firm flagged a potential hit to sales but maintained its key profit and cash flow targets.

Earlier in the session, Asian stocks fell, as South Korean equities lead a decline after a policymaker said the nation should pay citizens a “dividend” using tax on profits from artificial intelligence. The MSCI Asia Pacific Index fell 0.4%, with Samsung and MediaTek among biggest drags. Korea’s benchmark slumped as much as 5.1% before paring loss to about 2% after a clarification. Stocks traded higher in Hong Kong and Taiwan. The fast growth in earnings for AI companies are starting to prompt calls for redistribution of some of those benefits. Korea’s knee-jerk reaction shows the extent in which some of Asia’s key technology-led markets are reliant on profits from AI buildout. Stocks also declined in India, mainland China and New Zealand.

In FX, the pound is one of the weakest major currencies against a broadly stronger dollar, with greenback and oil rising on doubts about US-Iran ceasefire.

In rates, treasuries hold losses in early US session amid bigger selloff in gilts and latest increase in oil prices after US President Donald Trump cast doubt on the Iran ceasefire. US yields are 1.5bp-2bp higher on the day — lifting 30-year back above 5% for first time since May 5 — with curve spreads little changed; UK 10-year rose as much as 14bp and remains 9bp higher vs Monday’s close Gilts slump as UK MPs pressure Prime Minister Keir Starmer to set out a timetable to stand down. UK 10-year yields advanced to the highest since 2008 and 30-year yields to the highest since 1998.Treasury refunding auctions continue with $42 billion 10-year new issue at 1pm New York time; demand was soft for 3-year notes Monday. Cycle concludes Wednesday with $25 billion 30-year new issue. WI 10-year yield near 4.44% is ~12bp cheaper than last month’s auction, which tailed by 0.2bp. IG dollar issuance slate includes a couple of items so far. Twelve borrowers raised a combined $18 billion Monday, with issuers paying about 3bps in new issue concessions on deals that were 4.5 times covered. Focal points of US session include April CPI data and 10-year note auction.

Yields rising across Europe as Brent hits $107/barrel, and as investors add to bets on ECB and BOE rate hikes in 2026. The pound is one of the weakest major currencies against a broadly stronger dollar, with greenback and oil rising on doubts about US-Iran ceasefire. Stoxx 600 down 0.6%, dragged down by banks and retail stocks. S&P 500 futures down by 0.3% with weakness in chipmakers and big tech names in premarket trading. Gold weaker and sitting around $4,700/oz.

In commodities, WTI crude oil futures are up more than 3% near $101 a barrel, while global benchmark Brent crude traded near $107. The precious metals complex opened higher in Asia but there's been broad USD support through the London morning with a sharp correction back to lower in gold, moving from $4,774 down to $4,686. In Asia, the desk saw some light physical demand but gold was consistently offered. The white metals have followed lower with silver down around 3% after it led the sharp rally on Monday. Gold ETF holdings rose by 0.06moz, silver ETF holdings rose by 1.40moz. Oil is climbing as Brent is trading near $107.50 after hitting a daily high above £$108. Rising energy prices are in the spotlight ahead of today's US CPI data

Economic data slate includes weekly ADP employment change (8:15am), April CPI (8:30am) and federal budget balance (2pm). Fed speaker slate includes Chicago Fed’s Goolsbee (9:10am, 1pm), and NY Fed releases quarterly report on household debt and credit at 11am

Market Snapshot

S&P 500 mini -0.2%
Nasdaq 100 mini -0.7%
Russell 2000 mini -0.3%
Stoxx Europe 600 -0.8%
DAX -0.8%, CAC 40 -0.6%
10-year Treasury yield +2 basis points at 4.43%
VIX +0.5 points at 18.87
Bloomberg Dollar Index +0.3% at 1193.03
euro -0.3% at $1.1747
WTI crude +3.3% at $101.33/barrel

Top Overnight News

Trump has grown increasingly frustrated with how the Iranians are handling negotiations to end the war, and some Trump aides say that he is now more seriously considering a resumption of major combat operations than he has in recent weeks. CNN
US President Trump to confront Chinese President Xi at the upcoming summit over China's backing of Iran and Russia. Officials said the leaders are also expected to discuss Taiwan, cybersecurity, artificial intelligence and rare earth supply chains during the summit. Fox News reported
The White House said Trump will meet Xi Jinping in Beijing on Thursday. Boeing CEO Kelly Ortberg is expected to join the US delegation and has hinted at a major deal. BBG
Some BoJ policymakers argued in April for raising rates soon, with one flagging the chance of a June move, highlighting a ‌growing hawkish shift on the board as an oil shock from the Iran war sharpened pressure for near-term tightening. RTRS
The Kospi swung after a top South Korean policymaker said the country should pay citizens a dividend using taxes on AI profits. The adviser later clarified it would be funded by excess profits. BBG
Keir Starmer pushed back against calls for him to quit and vowed to his cabinet to stay on as PM. More than 80 Labor lawmakers have called on Starmer to step aside in the wake of last week’s local elections. UK bonds slumped and 30-year yields rose to the highest level since 1998. BBG
Plastics prices are surging as a result of the Middle East war, creating significant margin pressure for a slew of companies. Many of these companies may push through price increases that will eventually be felt by consumers. Barron’s
The US is delaying a plan to suspend beef import tariffs, according to the WSJ. Trump had been set to sign executive orders yesterday aimed at lowering prices. BBG
Technology has never been more dominant in the stock market, and Nvidia now has a larger market value than the entire healthcare sector of the S&P500. Barron’s
Musk’s AI model, Grok, lags far behind its fast-growing competitors—and an agreement by parent company SpaceX to rent massive computing power to Anthropic raises questions about whether it can still catch up. WSJ

Iran War

IRGC Navy official Akbarzadeh said Iran has significantly expanded its definition of the Strait of Hormuz strategic zone to include the coasts of Jask and Siri beyond the main islands, Al Mayadeen reported.
Iran Parliament Speaker Ghalibaf said "There is no alternative but to accept the rights of the Iranian people as laid out in the 14-point proposal. Any other approach will be completely inconclusive; nothing but one failure after another."
Iranian Parliamentary spokesperson said "One of Iran's options in the event of another attack could be 90 percent enrichment. We will review it in the parliament.".
Deputy Foreign Minister for Legal and International Affairs of Iran Gharibabadi said US draft plan about Strait of Hormuz shows an attempt to change the face of the issue. Considered this action to be an attempt to change the face of the issue, and said that while Iran is the target of threats, pressure and attacks, some are trying to turn the consequences of a military aggression and illegal blockade into a case against Iran.
IRGC Navy deputy said in a recent case, Iranian forces fired warning shots after an American frigate showed “provocative behaviour” in the Strait of Hormuz, prompting it to change course, Fars reported.
Iran’s ambassador to China said Tehran views its strategic partnership with China as key to countering US pressure and advancing demands for a lasting ceasefire, IRNA reported.
CNN White House Correspondent Treene posted "Many in Trump’s orbit want Pakistani mediators to be far more direct in their communications with the Iranians", adds "some Trump aides say that he is now more seriously considering a resumption of major combat".
Washington was on the verge of making a decision a week ago to resume attacks on Iran, Al Hadath reported. Those close to Trump convinced him last week at the last minute to freeze the decision to return to war. Israel assesses that Khamenei is still preventing any progress in the negotiations as the Supreme Leader.
Pakistan's ambassador to Russia is convinced that the US will not resort to a new military operation against Iran, according to TASS citing an interview.
Israeli Navy shells Khan Yunis coast, according to Noor News, while Israel also conducts airstrikes on multiple towns in southern Lebanon, according to Al Jazeera.
UAE has carried out military strikes on Iran, according to WSJ citing sources; UAE strikes have included attack on a refinery on Iran's Lavan Island back in early April. The strikes, which the UAE hasn’t publicly acknowledged, have included an attack on a refinery on Iran’s Lavan Island which took place in early April around the time Trump was announcing a cease-fire.
Israeli strikes in southern Lebanon killed six and fighting continues despite April 17th ceasefire, according to AFP.
Hezbollah said it targeted a Merkava tank in the town of Bayada with a guided missile and it was seen burning.
Secretary General of Lebanon's Hezbollah said "We are ready to cooperate with the authorities to achieve the sovereignty of Lebanon by stopping Israeli aggression by land, sea and air", ISNA reported.
Qatar orders ships at its LNG port to “go dark” under new safety measures.

UK Politics

UK PM Starmer said he will not be setting out a timetable for departure. He reiterated that he takes full responsibility for the election results.
Plenty of Cabinet Ministers spoke following the meeting with McFadden saying no one directly challenged PM Starmer during the cabinet meeting, Kendall stating Starmer has her "full support" and Kyle saying Starmer provides "steadfast leadership."
"[UK PM] Starmer did not give his critics any chance to speak against him in this morning's meeting", Telegraph's Diver reported.
UK PM Starmer is, according to a 'very senior minister', going to fight, ITV's Peston reported. Further reporting by Mail on Sunday's Hodges stated that UK PM Starmer "is reportedly is looking for a dignified way of ending all this. But he doesn't want to be seen to be forced out."
Over 81 Labour MPs have now called for UK PM Starmer to resign, Politics UK reported; "This is officially enough to launch a leadership challenge if they unite behind a single candidate".
UK Junior Minister Fahnbulleh resigns (the first Ministeral level resignation) and called on PM Starmer to set a timetable for a transition.
UK Chief Secretary to the PM, Jones, indicates that PM Starmer could be about to announce a timetable for his resignation, according to Times' Swinford. Jones said "I'm not going to get ahead of the PM's decision."
Four UK cabinet ministers, led by the Home Secretary, have gone into Number 10 to tell the prime minister to set out a timetable for him to resign, according to ITV News. UK Deputy PM Lammy urges PM Starmer to set out a timetable to quit.
Four people with knowledge of conversations involving the UK Cabinet believe some ministers will move today, Politico Playbook reported. As many as six ministers could ask for the PM to outline his exit plans at the Cabinet meeting.
"Senior Labour figures are very nervous about the market reaction this morning, hence some in the Cabinet pushing the PM to go in a way that doesn't destabilise the party", Eurasia journalist Rahman posted.
UK Foreign Minister Cooper told UK PM Starmer he should see an orderly transition of power.
UK Greater Manchester Mayor "Burnham's allies say a seat has been lined up for him to stand - with an announcement aimed possibly today", The Times' Kendix reported.
Allies of UK Greater Manchester Mayor Burnham state that a timetable of a new Labour leader/PM by end-September would provide Burnham with enough time to return to the House of Commons, Sky's Rigby reported.
UK Chancellor Reeves has pulled out of her speech at the Global Risks Summit, according to Daily Express' Spyro.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed following the mild gains on Wall St, where the S&P 500 and NDX extended record highs, but with the upside capped by higher oil prices and geopolitical uncertainty after US President Trump said the ceasefire is unbelievably weak and is on life support, but added that a diplomatic solution with Iran is still possible. Furthermore, Trump was said to be now more seriously considering a resumption of major combat operations than he has in recent weeks, although sources also stated that a major decision on how to proceed is unlikely to be made prior to the president’s departure to China. ASX 200 was dragged lower as weakness in the tech, healthcare, financials and consumer sectors offset the commodity-related gains, while sentiment was also not helped by a soft NAB Business Survey. Nikkei 225 ultimately gained, but with price action choppy amid a softer currency, disappointing Household Spending data and hawkish undertones from the BoJ Summary of Opinions, while participants also reflected on the record earnings from SoftBank.
Hang Seng and Shanghai Comp were mixed with the Hong Kong benchmark led higher by Kuaishou Technology after it was reported that the Co. plans to spin off its Kling AI video unit at a USD 20bln valuation, while the mainland lacks conviction as participants await the looming Trump-Xi summit in Beijing.

Top Asian News

AUSTRALIAN BUDGET: Australia sees 2025/26 budget deficit at AUD 28.3bln (vs AUD 36.8bln projected); sees 2026/27 budget deficit at AUD 31.5bln, 2027/28 deficit AUD 31.0bln; Treasurer says budget helps, rather than harms, the fight against inflation.
US Treasury Secretary Bessent said he made no request to PM Takaichi regarding monetary policy; in very close contact with Japan's finance ministry and the relationship with it is working well; both believe FX volatility is undesirable. Japan's economic fundamentals are strong and resilient, and that will be reflected in exchange rates. Expects inflation to be a short-term and transient blip. Has great confidence BoJ Governor Ueda will guide the Bank to a very successful monetary policy. PM Takaichi did not make requests about China.
Japanese Finance Minister Katayama said had meeting with US Treasury Secretary Bessent and discussed financial market situation, including forex, while she reaffirmed close cooperation based on joint statement last year.
Japanese Finance Minister Katayama said the Bessent-Takaichi talks were very positive, in which they discussed Mythos and critical minerals.
Japan's Finance Ministry declines to comment on market speculation about rate checks.
South Korean policy chief Kim said AI citizen dividend will be from excess tax and that AI dividend does not mean a windfall tax.

European bourses (STOXX 600 -0.7%) trade with losses across the board, driven by multiple factors: 1) Iran-US war seemingly not having an end in sight, 2) UK political turmoil, and 3) mixed earnings. Overnight, US President Trump said that the ceasefire is unbelievably weak and reiterated that Iran’s proposal is unacceptable. Further reporting by Axios stated that Trump held a meeting with his national security team to discuss a way forward, which included the possible resumption of military action. This drove energy prices higher and, in turn, weighed on equities globally. European sectors are broadly in the red, with Energy outperforming as WTI and Brent regain the USD 100/bbl and USD 106/bbl respectively. Outside of Banks, Retail sits at the bottom of the pile.

Top European News

EU ZEW Economic Sentiment Index (May) -9.1 vs. Exp. -20 (Prev. -20.4).
German ZEW Economic Sentiment Index (May) -10.2 vs. Exp. -20.5 (Prev. -17.2, Low. -35.0, High. -10).
German ZEW Current Conditions (May) -77.8 vs. Exp. -77.5 (Prev. -73.7, Low. -80.0, High. -68.0).
German Inflation Rate MoM Final (Apr) M/M 0.6% vs. Exp. 0.6% (Prev. 1.1%, Low. 0.6%, High. 0.6%).
German Inflation Rate YoY Final (Apr) Y/Y 2.9% vs. Exp. 2.9% (Prev. 2.7%, Low. 2.9%, High. 2.9%).
Italian Industrial Production YoY (Mar) Y/Y 1.5% (Prev. 0.5%).

Snapshot: DXY is firmer this morning, benefiting from continued geopolitical uncertainty. The JPY is mildly lower, but performing a bit better vs peers after an aggressive bout of strength seen in early morning trade – potentially intervention. GBP is the clear underperformer this morning, as markets eye turmoil in the Labour Party. EUR was little moved to better-than-feared ZEW sentiment metrics.
DXY is firmer by around +0.4%, and currently at the upper end of a 97.95-98.28 range; holding just shy of its 21-DMA at 98.31. Strength today has been facilitated by ongoing geopolitical uncertainty, with President Trump suggesting the US-Iran ceasefire is “on life support”, and repeated that Iran’s proposal was unacceptable. (Detailed analysis piece on the Newsquawk feed). Domestically, focus will shift to the US CPI report this afternoon. Headline M/M is expected to rise 0.6% (prev. 0.9%); the core metrics are expected to rise modestly from the prior.
GBP is underperforming this morning and trades at the bottom end of a 1.3502-1.3614 range. This morning has seen Cable slip below its 21-DMA (1.3542). Next level to the downside includes the round 1.3500 mark, and a dip below that level could see a test of its 100-DMA at 1.3482.
As it stands, PM Starmer reportedly announced that he will remain as PM, adding that he will not be setting out a timetable for departure. A move which essentially invites a leadership challenge; as it stands, the only real imminent challenge would be via Wes Streeting, though Rayner is an outside possibility. This, however, could bring further division into the Labour party, as an early challenge might split Labour between Starmer, Streeting and Burnham supporters. In the near-term, we look for a formal challenge and/or more ministerial-level resignations in a bid to pressure Starmer into changing his mind.
JPY is mildly lower, with focus on a) potential intervention and b) Bessent-Takaichi meeting. On the point of intervention, an aggressive move lower was seen in USD/JPY from around 157.71 to 156.72 (today’s range 156.72-157.75). A move which lacked a clear driver, raising speculation of further intervention. Overnight, Treasury Sec. Bessent and PM Takaichi met where the pair discussed the financial market situation, including forex, while she reaffirmed close cooperation based on the prior accord but refrained from any significant currency jawboning. Commentary post-meeting lacked any real surprises, with the USD/JPY ultimately little moved following the details of the discussions.

Central Banks

Fed Chair nominee Warsh clears Senate procedural hurdle and a Senate confirmation vote is expected as early as Wednesday.
BoJ Summary of Opinions from the April meeting noted a member said that given real interest rates are at a significantly low levels, it is appropriate for the BoJ to continue raising policy rates. Member said Japan’s real policy interest rate is by far at the lowest level globally, BoJ must to continue to adjust the negative real interest rate in preparation for the second-round effects of price rise.
ECB's Nagel said ECB mandate requires to act if inflation expectations de-anchor; "we'll see in June"; baseline includes two rate hikes.
ECB’s Patsalides said there are scenarios in which the ECB may avoid raising interest rates.

Fixed Income

A bearish start for fixed income as energy benchmarks climb after overnight rhetoric (see the feed for more), and with the intensifying scrutiny around UK PM Starmer weighing on Gilts and dragging peers lower as well.
Bunds and USTs began the morning with modest losses, of a handful and around 20 ticks, respectively. While USTs haven't dipped much further, they are down to a 110-06+ low ahead of US supply and CPI. If the pressure continues, we look to 110-00+ from last week before the 109-24 contact low from March.
Bunds saw a bout of pressure in the European morning, before the Gilt open, seemingly as the press reporting around UK PM Starmer intensified further early doors. Enough to send Bunds below the 125.00 mark.
Gilts opened lower by 73 ticks and hit an 85.82 trough. Thereafter, UK paper trundled lower to make a contract low at 85.45 ahead of leaked comments from the PM, where Starmer reportedly announced his intention to remain as the PM. Gilts moved from 85.52 to 85.81 in the moments after his comments, as it potentially signals that Chancellor Reeves will remain at her post in the near-term. In brief, his comment essentially invites a leadership challenge; as it stands, the only real imminent challenge would be via Wes Streeting, though Rayner is an outside possibility. This, however, could bring further division into the Labour party, as an early challenge might split Labour between Starmer, Streeting and Burnham supporters. In the near-term, we look for a formal challenge and/or more ministerial-level resignations in a bid to pressure Starmer into changing his mind.
Germany sells EUR 4.630bln vs exp. EUR 6bln 2.50% 2028 Schatz: b/c 1.4x (prev. 1.7x), average yield 2.70% (prev. 2.47%), retention 22.8%.
UK sells GBP 4bln 4.125% 2031 Gilt: b/c 3.36x (prev. 3.33x), average yield 4.651% (prev. 4.228%), tail 0.2bps (prev. 0.3bps).
The Netherlands sold EUR 2.745bln vs exp. EUR 2-3bln 2.75% 2036 DSL: average yield 3.209% (prev. 2.955%).
Japan sold JPY 1.95tln 10yr JGBs, b/c 3.90x (prev. 2.57x), average yield 2.540% (prev. 2.350%).

Commodities

In geopolitics, US President Trump said he has a plan on Iran and repeated that Tehran’s proposal is unacceptable. He added that the ceasefire is unbelievably weak and “on life support”, although a diplomatic solution is still possible. Meanwhile, Axios reported Trump met with his national security team to discuss options, including possible renewed military action against Iran. US officials said Trump still wants a deal, but Iran’s refusal to make major nuclear concessions has put the military option back on the table. Two US officials said Trump is leaning toward some form of military action to increase pressure on Iran. That being said, it was also reported that US officials said Trump is unlikely to authorise military action before returning from China later this week.
From an Iranian perspective, Iran reiterated that enrichment is not negotiable and rejected transferring enriched uranium outside the country. An Iranian parliamentary spokesperson said one option in the event of another attack could be 90% uranium enrichment.
In reaction, WTI and Brent futures are firmer by 3.1% and 2.6% respectively, with the former towards the upper end of USD 98-101.47/bbl range and the latter just shy of session highs (USD 104.23-107.29/bbl band). Dutch TTF is firmer by some 2.5% above EUR 47/MWh.
Spot gold is softer amid the energy-induced rise in the USD, with the bullion hovering on either side of USD 4,700/oz (in a USD 4,686-4,773/oz band) as traders look ahead to US CPI later today, alongside further headlines risk on the US-Iran front, in which a macro update will likely ultimately dictate price action.
Base metals are mixed/mostly lower given the cautious risk sentiment and firmer USD. Copper overnight edged higher in choppy trade amid the mixed overnight risk appetite. 3M LME copper currently resides between USD 13,831.70- 13,980.38/t.
US released another 53.3mln barrels from Strategic Petroleum Reserve to companies including Trafigura, Marathon Petroleum (MPC), and Exxon Mobil (XOM) in an effort to ease soaring fuel prices caused by the Iran war and disruptions in the Strait of Hormuz.
US House could vote on a gas-tax holiday as early as next week, according to multiple sources familiar with the planning cited by Punchbowl.

Trade/Tariffs

US President Trump said need more tariffs.
White House said US President Trump will meet with Chinese President Xi on Thursday at 10:15 AM in Beijing (03:15BST/22:15EDT) and banquet will be held at 18:00 on Thursday (11:00BST/06:00EDT). Working lunch on Friday will take place at 12:15 (05:15BST/00:15EDT).
France presses EU to crack down on platforms like Shein and Temu, according to FT.
US Treasury Secretary Bessent posted that he held talks with Japanese Economy Minister Akazawa; "I highlighted the continued positive collaboration between the United States and Japan on issues pertaining to critical minerals and supply chains".

US Event Calendar

6:00 am: United States Apr NFIB Small Business Optimism, est. 96.1, prior 95.8
8:30 am: United States Apr CPI MoM, est. 0.6%, prior 0.9%
8:30 am: United States Apr Core CPI MoM, est. 0.3%, prior 0.2%
8:30 am: United States Apr CPI YoY, est. 3.7%, prior 3.3%
8:30 am: United States Apr Core CPI YoY, est. 2.7%, prior 2.6%
2:00 pm: United States Apr Federal Budget Balance, est. 220b, prior -164.1b
9:10 am: United States Fed’s Goolsbee Radio Appearance on NPR
11:00 am: United States NY Fed Quarterly Report on Household Debt and Credit
1:00 pm: United States Fed’s Goolsbee Speaks at Greater Rockford Chamber of Commerce

DB's Jim Reid concludes the overnight wrap

Speaking of the AI race, some big overnight market moves came with a sharp drop in the KOSPI as a senior official floated the idea of a “citizen dividend” on AI profits, which has also weighed on tech sentiment overnight. Before that, chips stocks had led the S&P 500 (+0.19%) to another record high even as a renewed uptick in oil prices amid the deadlock between the US and Iran pushed yields higher. Meanwhile, UK politics are set for more headlines today, with reports of a fracturing in support for Prime Minister Starmer ahead of a potentially crucial Cabinet meeting this morning.

Starting with Iran, President Trump sowed doubts over the US-Iran ceasefire, saying that it was on “massive life support” as he called Iran’s latest offer “a piece of garbage”. Those comments came as Iran’s response to last week’s US proposal reportedly demanded a lifting of the US blockade and sanctions relief, as well as Iran maintaining a degree of control over the Strait of Hormuz. Iran’s Parliamentary Speaker Ghalibaf posted that “there is no alternative but to accept the rights of the Iranian people” as laid out in Tehran’s proposal. Meanwhile, Trump also told Fox News yesterday that he was considering reviving Project Freedom, the short-lived operation to escort ships through the Strait of Hormuz, and said he was supportive of a gasoline tax holiday, something that would require Congressional action. With the sides appearing no closer to resolving their negotiation deadlock, Brent crude prices are +0.70% higher at $104.94/bbl this morning after a +2.88% gain yesterday. Markets are also pricing rising chances of lasting disruption, with 6-month Brent futures up +2.54% to $89.50/bbl yesterday.

As mentioned at the top, the major story out of Asia this morning were comments from South Korea's presidential policy chief Kim Yong-beom proposing a "national dividend" to share in excess AI industry profits. This sent the KOSPI as much as -5.1% lower this morning, though it partially pared back this loss to-2.90% as I type, with Kim clarifying that he was suggesting tapping into “excess tax revenue” rather than introducing a new windfall corporate tax. The index heavyweight Samsung is down -3.4%. The news has also led NASDAQ futures (-0.34%) to lag those on the S&P 500 (-0.14%), while STOXX 50 futures (-0.61%) are losing more ground in Europe. But the mood is less negative elsewhere in Asia, with S&P/ASX 200 (-0.24%) as well as the CSI (-0.31%) and Shanghai Composite (-0.40%) seeing moderate losses, while the Nikkei (+0.62%) and the Hang Seng (+0.30%) are advancing.

Before that, US equities continued to advance yesterday despite the Iran stalemate, with the S&P 500 (+0.19%) and the NASDAQ (+0.10%) posting new records. Chips stocks again led the way, with the Philly semiconductor index (+2.59%) extending its YTD gain to +70%, while energy companies also surged. That said, the broader market mood was a bit more cautious, with most S&P 500 constituents lower on the day and the Mag-7 (-0.26%) slipping. Across the Atlantic, European equities were also more mixed, with the Stoxx 600 (+0.11%), FTSE 100 (+0.36%) and Dax (+0.05%) posting modest gains, while France’s CAC 40 (-0.69%) underperformed amid a fall in luxury retail stocks.
It was a more negative story in the rates space, as yields moved higher amid the rise in oil prices. The 2yr Treasury yield (+6.9bps) rose to 6-week high of 3.96%, as Fed funds futures are now pricing 15bps of hikes by next April. 10yr Treasury yields rose +5.9bps to 4.41%, whilst in Europe yields on 10yr bunds (+3.5bps) as well as OATs (+3.9bps) and BTPs (+5.2bps) all moved higher as well.

JGBs are also losing ground this morning, with the 10yr yield up +1.6bps to a new post-1997 high of 2.54%. A summary of opinions from last month’s BoJ board meeting showed policymakers considering a rate hike at the next meeting, with the central bank having grown increasingly concerned about a potential rise in underlying inflation stemming from Iran-driven disruptions. A June BoJ hike is currently 75% priced. Separately, Japanese household spending declined by a larger-than-expected -2.9% yoy in March (-1.3% expected), highlighting the fragility of consumption even as wages continued to grow.

Looking ahead to today, UK politics are set to be in the headlines again with a Cabinet split over support for Prime Minister Keir Starmer emerging yesterday. The FT reported that three ministers had asked the PM to consider his position. Starmer had said on Monday that he would not resign after suffering major losses in the UK local elections last week. But with his speech yesterday delivering little of note, aside from plans to nationalise British Steel and introduce a new EU youth scheme, more Labour MPs called on the PM to step aside in its aftermath, with the total number rising above 70. With a Cabinet meeting expected this morning, today could be a big day in determining Starmer’s future. In response to the uncertainty, 10yr UK gilt yields rose +8.6bps to 5.00% yesterday, whilst the 30yr yield rose +9.3bps to 5.67%, given expectations that a new Labour leader may face pressure to ease the fiscal rules and raise gilt issuance.

Elsewhere the day ahead will see the release of the April US CPI print. Our economists expect headline inflation to rise by +0.58% m/m, moderating from March’s +0.9%, but still relatively firm. This would raise the annual rate to 3.8%, its highest since May 2023. And they project the core reading to accelerate to +0.39% m/m from +0.2%, suggesting underlying price pressures remain sticky even as the energy price jump moderates. You can read the US team's CPI preview and register for their post-release webinar here.

Meanwhile, the US Senate is due to vote today to confirm Kevin Warsh to the Fed Board, after clearing a procedural vote by a 49-44 margin last night. A further Senate vote to confirm him for the Fed Chair position is expected later in the week before Chair Powell’s term ends on Friday. As a reminder, Warsh will be taking over Governor Miran’s place on the Board, as Powell plans to stay on as a Governor.

Otherwise on the docket today is US NFIB small business optimism, Germany May Zew survey, Eurozone May Zew survey. The Fed’s Goolbee and ECB’s Dolenc will also speak today.

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