Morning Bid: A bad case of the bond blues

• Both U.S. consumer and producer prices posted their largest April increases in years due to the energy shock from the 13-week Iran conflict, with even 'trimmed-mean' inflation rising significantly
• The Trump-Xi summit yielded warm rhetoric but little substance: a smaller-than-expected Boeing deal and vague agricultural commitments, with China making no firm pledges to pressure Iran on reopening the Strait of Hormuz
• UK borrowing costs reached their highest levels in almost 30 years amid political turmoil, with Prime Minister Keir Starmer facing calls to resign after Labour's poor local election performance, while global stock markets remained buoyed by AI-driven tech rallies led by Nvidia

Market Summary: Bond Markets Under Pressure from Middle East Conflict and Rising Inflation

Key Developments:

The Trump-Xi summit in Beijing (May 15, 2026) produced minimal market-moving results beyond a smaller-than-expected Boeing deal and vague commitments on U.S. agricultural purchases. The real market driver remains the 13-week Iran conflict and its impact on global inflation and bond yields.

Energy Market Situation:

Oil prices held firmly above $100 per barrel throughout the week, with the Strait of Hormuz obstruction continuing despite White House statements about reopening agreements. China made no firm commitments to pressure Iran, though some tankers have recently transited with Tehran's consent. The U.S. and other producers have increased output to plug supply gaps, while countries draw down inventories. However, this fragile balance faces threats from approaching peak summer demand.

Inflation and Bonds:

U.S. consumer and producer prices posted their largest increases in years during April due to the energy shock. Even trimmed-mean inflation—a preferred gauge of incoming Fed Chair Kevin Warsh (confirmed Wednesday)—rose significantly. Market expectations now favor a rate hike over a cut in the coming year.

The 30-year U.S. Treasury auction yielded 5.046%, the highest since August 2007. UK bond markets proved particularly vulnerable, with long-term borrowing costs reaching 30-year highs amid political uncertainty after Labour's poor local election performance last Thursday.

Equities:

Major U.S. indexes hit new record highs Wednesday, driven by AI-related gains. Nvidia received approval to sell H200 chips to approximately 10 Chinese firms. South Korea's SK Hynix approaches trillion-dollar market cap status. However, Asian tech indexes retreated amid the global bond selloff. Nvidia earnings next week could reignite the AI rally.