Trading Day: Inflation up, chips down

• The Philadelphia Semiconductor index dropped as much as 6% before recovering half those losses, potentially due to high valuations after a 70% rally in six weeks
• U.S. 10-year Treasury yields rose 5 basis points across the curve with a weak auction showing a large tail and low bid-to-cover ratio
• UK long-term bond yields surged to the highest since 1998 amid political pressure on Prime Minister Keir Starmer following Labour Party election defeats, with sterling falling 0.5% as the biggest decliner among major currencies

Market Summary: Trading Day - Inflation up, chips down

Key Market Developments

U.S. markets declined Tuesday, with the S&P 500 down 0.2% and Nasdaq falling 0.7%, pressured by surging inflation and a sharp drop in semiconductor stocks. The Philadelphia Semiconductor index tumbled as much as 6% intraday before recovering half those losses.

Inflation Concerns

U.S. headline CPI accelerated to 3.8% annually in April, exceeding expectations and marking the highest level in three years. This turned real wage growth negative for the first time since 2023. Analysts warn inflation could reach 4%—double the Federal Reserve's target—as soon as next month. The inflation spike has eliminated all rate cut expectations for 2025, with most economists abandoning easing forecasts.

Bond Market Reaction

Rising inflation pressures drove bond yields higher, with U.S. 10-year yields up 5 basis points across the curve. A soft Treasury auction showed weak demand with a large tail and low bid-to-cover ratio. UK 30-year yields hit their highest level since 1998 amid political uncertainty surrounding Prime Minister Keir Starmer's leadership.

Commodity and Currency Moves

Oil prices surged, with WTI crude jumping 4% back above $100 per barrel. The U.S. dollar strengthened broadly, with the euro declining 0.5% and Korean won down 1%. South Korea's KOSPI experienced extreme volatility, closing down 2%.

Looking Ahead

Key catalysts include U.S. President Trump's Beijing summit with President Xi Jinping, U.S. producer price data, Chinese tech earnings (Tencent, Alibaba), and eurozone GDP figures. Market focus remains on whether elevated headline inflation passes through to core measures.