US inflation data strengthens case for Fed rate cut

U.S. Stocks Dip as Inflation Cools, Oil Rallies on Geopolitical Risks

US equity markets closed lower on Wednesday, with the S&P 500 and Nasdaq slipping slightly despite a softer than expected inflation report for May. The Consumer Price Index (CPI) rose just 0.1% month on month and 2.4% year on year, both below forecasts, offering some reassurance that inflationary pressures may be stabilising. Core CPI, which excludes volatile food and energy prices, also saw muted growth, suggesting that businesses may be absorbing input cost increases rather than passing them onto consumers. Bond yields moved lower in response, particularly at the short end of the curve, as investors began pricing in a slightly more dovish outlook from the Federal Reserve. However, geopolitical concerns, particularly involving heightened tensions between the US and Iran, tempered optimism, with a partial evacuation of the US embassy in Iraq fuelling a shift towards safe-haven assets and boosting oil prices.

Sector performance on the day was mixed, with most S&P 500 sectors finishing flat or lower, except for energy shares, which benefited from the sharp rise in crude oil. Despite the market’s cautious tone, the broader outlook remains constructive. US and China trade talks showed signs of renewed momentum, with an agreement in principle suggesting reduced export controls in exchange for Chinese rare earth mineral access. While the framework still requires approval from both President Trump and President Xi, it reinforces the broader trend of easing trade tensions that has underpinned market stability in recent weeks. With peak trade-policy uncertainty likely behind us, and May inflation data suggesting no immediate need for aggressive monetary tightening, we believe equity markets remain well positioned. Given the solid fundamentals, ongoing resilience in consumer demand, and easing global trade risks, investors may benefit from maintaining a modest overweight in equities, particularly in US shares, relative to fixed income as the year progresses.

Latest Market and Economic Update

Asian markets were mixed on Thursday amid Middle East tensions and cautious US-China trade sentiment, with China’s indexes slipping and Japan’s Nikkei and TOPIX falling. Meanwhile, South Korea’s KOSPI hit a 3½-year high on political optimism, and Australia’s ASX 200 rose modestly, boosted by energy and mining shares.

US equity futures edged lower on Thursday as investors looked ahead to the latest producer inflation data, following a softer consumer inflation reading that eased pressure on the Federal Reserve. In after-hours trading, Oracle shares jumped over 7% after stronger-than-expected fourth-quarter earnings and revenue, offering a bright spot amid market caution.

European equity markets fell yesterday, with the Stoxx 50 down 1% and the Stoxx 600 slipping 0.3%, as mixed signals on global trade weighed on sentiment. Retail shares, led by a more than 4% drop in Inditex shares following weak sales, dragged the market lower, while autos and basic resources sectors gained on optimism from the US-China trade framework.

The US dollar index weakened below 98.5 on Thursday, nearing its lowest level since early 2022, as renewed tariff threats from President Trump and softer-than-expected inflation weighed on sentiment. The euro strengthened, with EUR/USD reaching a seven-week high near 1.1511, driven by dollar weakness and rising expectations of a potential Fed rate cut as soon as September.

Oil prices eased slightly in Asian trading on Thursday after a sharp rally the previous day, as US-Iran tensions sparked fears of supply disruptions but progress in US-China trade talks eased some market concerns. Brent and WTI futures fell around 0.4%, with investors closely watching the unfolding geopolitical risks and the details of the proposed US-China trade framework.

US President Trump plans to send letters to key trading partners within two weeks, setting unilateral tariffs before the 9 July deadline, though past deadlines have been delayed. In the meantime, Treasury Secretary Bessent said the tariff pause will likely be extended for countries negotiating in good faith, while a US–China trade framework awaits final approval.

Equities on the Move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Oracle raised its annual revenue growth forecast to around 16.7% for fiscal 2026, driven by strong demand for its cloud services and AI capabilities, boosting shares by over 7% after hours. The company reported quarterly revenue of $15.9 billion, beating estimates, with cloud services and license support revenue rising 14% to $11.7 billion.

Inditex missed first-quarter sales expectations and saw slower early summer growth due to tariff-related trade tensions, inflation concerns, and a rainy spring in Spain, causing its shares to fall 4.4%. Despite the challenges, the company remains confident in its global sourcing strategy and expects stable growth margins in 2025, while expanding its Gen Z-focused brand Lefties and Oysho stores.

Apollo Global Management and Irth Capital Management have made a joint bid to take Papa John’s private, valuing the world’s third largest pizza chain at just over $60 per share, sparking a 7.5% rise in its shares. The move follows ongoing efforts to improve the company’s performance away from public scrutiny, with both firms bringing significant experience in the restaurant sector.

Lockheed Martin’s shares dropped 6% after the US Air Force halved its F-35 jet procurement request to 24 aircraft, cutting its budget to $3.5 billion amid planned defence spending reductions. The Navy and Marines are also scaling back their F-35 orders, though the final funding could change as Congress reviews the proposal.

Shares of quantum computing companies rose yesterday after Nvidia CEO Jensen Huang declared quantum technology is at an “inflection point,” highlighting its potential to solve problems beyond the reach of current AI systems. This marks a shift from his earlier view that practical quantum computing was two decades away, signalling a nearer horizon for real-world applications.

OpenAI is in talks with Saudi Arabia’s Private Investment Fund, India’s Reliance Industries, and investor MGX for its $40 billion fundraising round, with potential investments in the hundreds of millions. The Microsoft-backed firm also aims to fund its $500 billion Project Stargate to build AI infrastructure in the US, with SoftBank as a key partner.

CoreWeave has secured a key role in Google’s partnership with OpenAI, providing GPU cloud computing for Google Cloud to resell amid rising AI demand. The deal diversifies CoreWeave’s revenue and boosts Google’s cloud amid competition with Amazon and Microsoft, which is reassessing its data centre strategy.

Oklo Inc’s shares surged 27.5% after being chosen by the US Department of Defense to deploy its Aurora nuclear reactor at Eielson Air Force Base under a long-term power purchase contract. Centrus Energy gained 7.1% on its agreement to supply HALEU fuel for Oklo’s reactors, positioning it to benefit significantly from the emerging and potentially lucrative nuclear fuel market.

Elon Musk softened his criticism of President Trump after pressure from administration officials, expressing regret for some posts but standing by his tax bill views. The feud raised concerns for Musk’s businesses, especially Tesla, which relies on government contracts, though Musk appears keen to protect his interests amid political tensions.

UniCredit CEO Andrea Orcel said Commerzbank’s share price is too high for a merger and the bank is “far away” from making an offer, citing opposition from the German government. He also doubts UniCredit’s chances of acquiring Banco BPM due to regulatory hurdles and Italy’s “golden powers” creating significant uncertainty.

Starbucks CEO Brian Niccol said the company has received significant interest in selling a stake in its China business, as it aims to boost sales in its second-largest market. Buyout firms such as KKR, Fountainvest Partners, and PAG are reportedly among those interested in partnering to expand Starbucks’ presence from 8,000 to 20,000 stores.

Stifel initiated coverage on Uber with a Buy rating and a $110 price target, highlighting its evolution into a super app combining ride-hailing, food and grocery delivery, and advertising potential. While bullish on DoorDash’s execution and advertising growth, Stifel remains cautious due to fair valuation and competition from Uber Eats, which may limit near-term upside.

Kepler Cheuvreux upgraded Bayer to “buy,” citing improved legal clarity and stronger earnings forecasts, while keeping the €33 target price as litigation risks are largely priced in. The brokerage highlighted Bayer’s upward revisions in sales, profits, and dividends through 2027, emphasising its strengths in crop science, pharmaceuticals, and stable consumer health earnings.

UBS downgraded Deutsche Boerse to “neutral” from “buy,” citing limited upside in earnings upgrades and a peak valuation that has already priced in much of the expected growth. Despite strong earnings forecasts and solid revenue drivers, UBS believes the risk-reward profile is now balanced, with a revised 12-month price target of €309 reflecting a slightly higher risk-free rate.

Jefferies rates Glencore a top buy, citing undervalued shares and a potential 31% upside to 380p, with further gains possible from spinning off coal and ferroalloys. Despite challenges like weak coal prices and declining production, analysts highlight strong cash flow, improving earnings potential in 2025, and possible value from restructuring.

Upcoming Data and Events

Today’s economic calendar features UK monthly GDP data, along with key US indicators including Core PPI, headline PPI, and weekly unemployment claims, while earnings to watch include results from Tesco and Adobe.

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