U.S. inflation heats up, the Iran-U.S. deadlock persists, U.S. stocks come under pressure, chip stocks drag down the Nasdaq, and U.S. crude oil rises nearly 5% intraday.

AI chip stocks decline, inflation data surpass expectations, and growing disagreements between Iran and the U.S. on restarting negotiations have become more evident, with triple pressures cooling the U.S. stock market.

On Tuesday, the S&P 500 index slightly retreated from its historical high, and the Philadelphia Semiconductor Index fell over 3% in a single day. U.S. oil prices broke through $102, and U.S. Treasury yields rose.

(Intraday movement of U.S. stocks, bonds, and oil)

According to Wallstreetcn, the U.S. April CPI year-over-year rose 3.8%, hitting a nearly three-year high, with core CPI increasing to 2.8%. Market bets on the Federal Reserve’s policy path have thus shifted.

According to the CME FedWatch Tool, the probability of a 25 basis point rate hike in December has risen to over 30%, up sharply from 21.5% the previous trading day.

(Probability of December rate hike of 25 basis points rises to 30.6%)

Expectations of rising interest rates suppressed bond prices, with the 10-year U.S. Treasury yield rising 5 basis points to 4.46%, and the 30-year yield climbing back above 5%.

(Intraday movement of major U.S. bond yields)

Skyler Weinand of Regan Capital stated:

Inflation is rebounding strongly, mainly driven by stubbornly high oil prices, which will dominate inflation trends for the rest of this year.

John Briggs, Head of North American Rate Strategy at Natixis, said:

If the conflict continues, the risk of oil-driven inflation permeating other sectors will increase daily, and the likelihood of rate cuts will continue to decline.

Ellen Zentner, Chief Economist at Morgan Stanley Wealth Management, pointed out:

The rise in core CPI indicates that high oil prices are transmitting to the broader economy, which does not mean the Fed will turn dovish, but it does suggest that the new leadership of the Fed will not immediately shift to a dovish stance.

The U.S. Senate officially confirmed Waller as a Federal Reserve Board member on the same day, and market expectations suggest he also has limited room for easing.

The bond market also experienced spillover effects from the UK bond market. UK Prime Minister Sunak faces a political crisis with multiple minister resignations. The 30-year UK government bond yield rose to its highest level since 1998, and the 10-year UK bond yield surged 10 basis points in a single day to 5.10%, further dampening market sentiment.

Oil prices rose 4.4% that day, with WTI crude closing at $102.35 per barrel, reflecting deepening market concerns over the prolonged Iran conflict.

(WTI crude futures over the past five trading days)

According to Wallstreetcn, citing CCTV News, Iran’s Foreign Ministry spokesperson Bagheri explicitly stated that ending the conflict and lifting the blockade on the Strait of Hormuz are prerequisites for any negotiations with the U.S., accusing the U.S. of demanding Iran’s “total surrender” rather than genuine dialogue.

Bloomberg analysts Dina Esfandiary and Becca Wasser pointed out:

The differences between Iran and the U.S. remain too large to reach an agreement. If neither side is willing to compromise, lasting peace will be far off, and intermittent escalation and prolonged conflict are the most likely scenarios.

Wallstreetcn noted that a new trading slang “NACHO” (Not A Chance Hormuz Opens) is popular in the market, indicating that the Strait of Hormuz is unlikely to reopen.

Investors are beginning to consider the long-term conflict leading to sustained disruptions in oil supply. The spot Brent crude structure shows significant contango, and concerns over short-term supply tightness are being re-priced.

(Brent crude futures prices surge, outperforming near-month contracts)

U.S. stocks opened lower, and in the afternoon, chip stocks dragged the Nasdaq down nearly 2%. However, buying on dips helped the market recover some losses, with the Dow turning positive and helping other stocks regain some ground.

(Intraday movement of major U.S. stock indices)

Around 1 p.m. Eastern Time, quantitative programs started, combined with aggressive buying of short-term call options, attempting to force a bottom and create a “deep V-shaped rebound” to boost market sentiment.

This operation often leads to a “Gamma Squeeze,” where short sellers are forced to cover, causing stock prices to rocket.

(After midday, surge in buy volume of at-the-money call options expiring on day 0)

The core driver of this tech rally, the AI chip sector, experienced a sharp decline that day.

(Intraday plunge of a semiconductor index basket)

Wallstreetcn mentioned that South Korean officials issued threats of taxing AI companies, though these statements were quickly downplayed afterward, enough to shake market sentiment. The Korea ETF (EWY) dropped over 7% that day, marking the second-largest single-day decline since the COVID-19 pandemic in March 2020.

(South Korea ETF drops over 7% in a day)

Momentum stocks declined sharply today, after hitting a five-year high in the previous session. Their high correlation with AI/semiconductor sectors has intensified the downward trend.

(High-momentum stocks decline intraday)

The software sector declined for the second consecutive day.

(A basket of software stocks declines for two days in a row)

Goldman Sachs traders reported that overall activity was at a 4/10 level, with significant selling pressure from institutions, mainly in information technology and discretionary consumer sectors.

The dollar strengthened, with the dollar spot index rebounding to last week’s high, the euro fell 0.4% to 1.1740 USD, and the pound declined 0.5% to 1.3539 USD.

(Dollar index rebounds to last week’s high)

U.S. stocks were mixed on Tuesday, with chip ETFs down 3.15%. Qualcomm fell 11.3%, Intel down 6.8%, and Strategy, SanDisk, Western Digital, and NXP all declined over 4%. JD.com, which reported better-than-expected Q1 revenue, rose over 3%.

Major U.S. stock indices:

• S&P 500 closed down 11.88 points, down 0.16%, at 7,400.96.

• Dow Jones Industrial Average up 56.09 points, up 0.11%, at 49,760.56.

• Nasdaq down 185.93 points, down 0.71%, at 26,088.20.

• Russell 2000 down 0.92%, at 2,844.28.

• VIX (fear index) down 2.23%, at 17.97.

Sector ETFs:

• Chip ETF down 3.15%, U.S. solar down 2.20%, AI robotics down 1.43%, S&P Healthcare up 1.94%, Consumer discretionary up 1.29%.

(U.S. stock sector ETFs on May 12)

The “Magnificent 7” tech giants:

• The Magnificent 7 index fell 0.32%.

• Tesla down 2.60%, Amazon and Microsoft down 1.18%, Google A down 0.33%, Nvidia up 0.61%, Meta up 0.69%, Apple up 0.72%.

Semiconductor stocks:

• Philadelphia Semiconductor Index down 3.01%, at 11,717.26.

• TSMC ADR down 1.80%, AMD down 2.20%.

Chinese concept stocks:

• NASDAQ Golden Dragon China Index down 0.7%.

• Among popular Chinese stocks, Kingsoft Cloud down 6.1%, GDS down 4.7%, Baidu down 3.9%.

• JD.com, which reported better-than-expected Q1 revenue, rose over 3%.

Other individual stocks:

• Circle down 6.03%.

• Software stocks broadly declined, Salesforce down over 3%, and GitLab, which announced a restructuring involving AI agents, fell about 10%.

• GameStop, rejected by eBay’s acquisition offer, fell 3.5%.

European blue-chip stocks declined about 1.5%, with Prosus dropping over 6.3% as the worst performer. German stocks fell over 1.6%, and the UK mid-cap index declined 1.5%.

Pan-European indices:

• STOXX 600 down 1.01%, at 606.63.

• Eurozone STOXX 50 down 1.48%, at 5808.45.

Country indices:

• Germany DAX 30 down 1.62%, at 23,954.93.

• France CAC 40 down 0.95%, at 7,979.92.

• UK FTSE 100 down 0.04%, at 10,265.32.

(Major European and US indices on May 12)

Sectors and individual stocks:

• Among Eurozone blue chips, Prosus fell 6.33%, Munich Re down 6.09%, Infineon down 5.91%, Siemens Energy down 5.05%, Asml Holdings down 3.05%.

• All components of the STOXX 600: Erste Bank Poland down 9.06%, Camurus down 8.81%, Houghton International down 7.20%, Vodafone Group down 7.02%.

Eurozone government bond prices declined for four consecutive days, with markets expecting the European Central Bank to raise interest rates three times this year. The 10-year German government bond yield rose over 10 basis points, reaching a historic high, and the 50-year UK bond yield hit a record high.

U.S. bonds:

• NY close: 10-year U.S. Treasury yield up 4.44 basis points at 4.459%.

• 2-year U.S. Treasury yield up 3.99 basis points at 3.989%.

(Major U.S. Treasury yields)

European bonds:

• At the close, Germany’s 10-year government bond yield rose 6.1 basis points to 3.101%, trading within 3.076%-3.105% during the day, with a total rebound of 10.1 basis points over the past four trading days.

• UK 10-year government bond yield increased over 10 basis points, with the 50-year yield rising 7.5 basis points to 5.310%, hitting a record high.

• France’s 10-year bond yield up 7.9 basis points, 2-year yield up 6.6 basis points, and 30-year yield up 6.2 basis points.

The dollar index rose for the second consecutive day to a one-week high, with the increase expanding after the CPI release; the yen declined for the second day but briefly jumped intraday, possibly signaling Japan’s intervention; offshore RMB once rose to 6.79, approaching a three-year high, then turned lower; Bitcoin briefly fell below $80k, down over 2% from the daily high.

Dollar:

• NY close: ICE dollar index up 0.33%, at 98.275, trading range 97.951-98.460.

• Bloomberg dollar index up 0.29%, at 1192.70, trading range 1188.72-1194.76.

(Bloomberg dollar index)

Non-USD currencies:

• NY close: EUR/USD down 0.32% at 1.1746, GBP/USD down 0.49% at 1.3543, USD/CHF up 0.30% at 0.7803.

• Commodity currencies: AUD/USD down 0.14%, NZD/USD down 0.18%, USD/CAD up 0.15%.

JPY:

• NY close: USD/JPY up 0.25% at 157.58 JPY, trading range 156.78-157.76.

• EUR/JPY down 0.09% at 185.03 JPY; GBP/JPY down 0.29% at 213.324 JPY.

Offshore RMB:

• NY close: USD/CNH at 6.7908, down 11 pips from Monday’s NY close, trading between 6.7977 and 6.79 during the day.

Cryptocurrencies:

• NY close: Bitcoin briefly dropped nearly 2.5%, then rebounded near the $80k support, still down 1.4% intraday.

Iran-U.S. deadlock persists, with crude oil prices surging for consecutive days, reaching a three-week high, with intraday gains of nearly 5% for U.S. oil and over 4% for Brent.

Crude oil:

• WTI June futures up $4.11, a 4.19% increase, at $102.18 per barrel.

(WTI crude futures)

• Brent July futures up $3.56, a 3.42% increase, at $107.77 per barrel.

• Abu Dhabi Murban Middle East crude futures up $2.08, at $105.75 per barrel.

Natural gas:

• NYMEX June natural gas futures at $2.8430 per million British thermal units.

Spot gold fell over 0.4%. Copper in London hit a three-month high supported by fund buying, with recent trading pushing LME copper above key technical levels, approaching the intraday record of $14,527.50 set on January 29.

Gold:

• NY close: Spot gold down 0.45%, at $4,714.95 per ounce, trading range 4,773.53-4,638.61.

(Spot gold price)

• COMEX gold futures down 0.15%, at $4,721.00 per ounce, trading range 4,783.40-4,645.20.

Silver:

• NY close: Spot silver up 0.57%, at $86.5445 per ounce, trading range 83.0565-87.2071.

• COMEX silver futures up 1.42%, at $87.165 per ounce.

Other metals:

• NY close: COMEX copper futures up 2.24%, at $6.6370 per pound.

• Spot platinum down 0.10%, at $2,133.13 per ounce; spot palladium down 0.94%, at $1,495.26 per ounce.

• LME copper up $78, at $14,021 per ton, driven by supply concerns and bullish technical signals, with funds betting on further gains.

• LME aluminum down $18, at $3,562 per ton. LME tin down $896, at $54,812 per ton.

Risk warning and disclaimer

Market risks are present; investments should be cautious. This article does not constitute personal investment advice and does not consider individual user’s specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their circumstances. Investment based on this information is at their own risk.