Written by Wall Street only cares about AI
Shares on Wall Street, as well as those in Japan and South Korea, soared to new all-time highs in the past 24 hours amid a boisterous rally in AI-related stocks that appears immune to the growing number of danger signs popping up. With tech giants and chipmakers confounding expectations with their latest quarterly earnings amid an explosive growth in AI demand, the fear of missing out, or FOMO, has gripped traders, pushing stock markets to record peaks even as the world faces its biggest energy shock in history.
Cisco Systems, which has enjoyed renewed interest during the past year from the AI boom, became the latest to report blockbuster earnings yesterday, pushing its stock up almost 20% in after-hours trading.
However, with the most important AI stock – Nvidia – not due to report its results until next Wednesday, and investors awaiting details on the highly anticipated meeting between Presidents Trump and Xi in China earlier today, the rally might take a breather over the next few days.
For Wall Street, any announcement of new deals between Beijing and Wall Street darlings such as Apple, Nvidia and Tesla, whose CEOs all travelled with Trump as part of the US business delegation, could keep the bullish momentum going amid the ongoing stalemate in US-Iran negotiations.
Trump and Xi hold crucial talks
The Iran war was likely part of the discussions Trump had with his Chinese counterpart, although it’s yet unclear to what extent it dominated the talks and how committed President Xi is to doing his part in bringing an end to the war by pressuring Tehran to accept a deal with the US.
Markets will also watch for any updates on trade, as there’s speculation that the two sides could agree to lower some tariffs. However, when it comes to Taiwan, Xi doesn’t appear to be in a compromising mood and has warned Trump about meddling in its affairs.
The high-stakes talks between the world’s two most powerful leaders have put Middle East peace efforts on ice this week. The impasse in negotiations has lifted oil prices, with futures recovering from last week’s lows. Yet, despite some renewed unease about the ongoing blockade of the Strait of Hormuz, markets are not panicking much as optimism of a deal continues to prevail.
But with both WTI and Brent crude prices holding above $100 a barrel, inflationary pressures are building up, most notably in the United States where both consumer and producer prices rose more than expected in April.
Hot US inflation data push up yields as Warsh confirmed
Wednesday’s much hotter-than-expected PPI data spurred a bigger reaction in Treasury yields and the US dollar than Tuesday’s CPI report, as investors found it increasingly difficult to ignore the worsening inflation picture in the US.
The US 10-year yield jumped to the highest since June 2025, with global sovereign bond yields also rallying. Most notably, Japan’s 10-year yield reached levels last seen in 1997, although this did little to boost the yen.
The dollar has been inching higher this week but is being pinned below the 158-yen mark, suggesting Japanese authorities are intervening to prevent the pair from climbing above the level.
The renewed inflation risks couldn’t have come at a worse time for incoming Fed Chair Kevin Warsh, who is set to take the helm tomorrow following a very close confirmation vote in the Senate yesterday.
Warsh’s easing bias has kept year-end rate hike bets at bay, but expectations for 2027 have been slowly gathering pace as neither inflation nor economic growth has softened in recent months.
Today’s focus, however, will be on the April retail sales figures, for any signs that consumer spending slowed amid surging gasoline prices.
Pound and UK yields unusually calm despite political turmoil
Amid the energy crisis-driven rout in bond markets, UK gilts have been a surprise exception. The UK 10-year yield eased from Tuesday’s 18-year highs and is extending its decline today, falling to around 5.05%, even as Prime Minister Keir Starmer’s future hangs in the balance.
The UK Health Secretary, Wes Streeting, is anticipated to launch a leadership bid today, with others expected to join. Investors probably see Streeting, who is not as left-leaning as others in his party, as the favourite to win any leadership contest, and therefore less likely to pursue policies that would push Britain’s already high borrowing levels even higher.
However, should a different favourite emerge, such as former Deputy Prime Minister Angela Raynor, who has just been cleared of wrongdoing in a tax investigation and is therefore free to run as a candidate, UK yields could resume their rally.
The pound could also attract greater volatility than it has done thus far. It’s currently trading around $1.3515, down less than 1% for the week, with today’s stronger-than-expected UK GDP estimates for Q1 offering some support.
By XM.com
