Daily summary: A week closed with declines – is the market starting to fear inflation?

🔑 The main factor shaping volatility

The reason behind the risk aversion seen in the markets can be traced to President Trump's seemingly unfruitful visit to China. However, looking at the yields on 10-year US Treasury bonds, one can also conclude that the market is increasingly concerned that the US inflation situation will slip out of Fed’s control.

🌍 Geopolitics

President Trump's diplomatic visit to China has concluded. The lack of significant progress on key topics (imports of rare earth metals, exports of American microprocessors, and – above all – cooperation on the reopening of the Strait of Hormuz) is concerning.

📊 Macro data

Today's release of US industrial production data for April surprised on the upside (0.7%). However, investors still seem to be primarily concerned with recent inflation releases. Both CPI and PPI data surprised upwards, the latter particularly strongly. Price pressure in the United States is at its highest since the turn of 2022/2023, which is increasing expectations for Fed interest rate hikes. An upward move before the end of the year is currently the market's base case scenario (60% implied probability).

📈 Indices

Almost all key indices are in the red today, although both the S&P 500 (-0.8%) and the NASDAQ Composite (-0.8%) managed to recover some of the losses incurred after the opening bell.

The Korean KOSPI (-6.1%), the German DAX (-2.2%), the French CAC40 (-1.6%) and the Polish WIG20 (-2.4%) closed the day with significant losses.

💼 Shares

Initial expectations regarding closer US-China trade relations in microprocessors have not materialized, which weighs on companies in the sector, especially given the scale of recent gains. Among the day's biggest losers are:

• ARM Holdings (-7,1%)
• Intel Corp (-6,6%)
• NVIDIA Corp (-2,9%)

💱 Currencies

Amidst ever-increasing geopolitical instability and growing inflation concerns, the dollar is gaining, once again ending the day at the top of the G10 currency dashboard. The US currency's weekly gain against the euro reached over 1.3%.

• Reports regarding the involvement of Flavio Bolsonaro, the right-wing candidate in the presidential election, continue to weigh on the Brazilian real.
• The Chilean peso weakens on lower copper prices.
• We are also seeing losses in the currencies most vulnerable to a prolonged closure of the Strait of Hormuz: the Hungarian forint, the South African rand and the Thai baht.

🛢️ Commodities

The increase in the yield on US Treasury bonds to the highest level in a year - by as much as 20 basis points since the beginning of the week in the 10-year (currently 4.59%)  – is not benefiting silver (-7.8%) and gold(-2%). Copper prices also declined (-1.6%). The lack of progress in reopening the Strait of Hormuz is leading to the Brent crude oil price approaching $110 and LNG exceeding the €50 per MWh threshold on the Dutch TTF exchange.

₿ Cryptocurrencies

The deterioration in market sentiment towards risk led to declines in Bitcoin (-2.4%) and Ethereum (-3%). After a one-day breakout, Bitcoin once again fell below the psychological level of $80,000.

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Michał Jóźwiak, Financial Markets Analyst at XTB