Wednesday, May 13

Futures markets ramped up bets on the Fed holding rates steady through 2026, pricing a 74.5% probability of no further cuts after fall's insurance easing, as tariff impacts on inflation proved slower than feared but persistent. This shifted sentiment from aggressive cut expectations, with S&P 500 futures flat and Nasdaq futures down 0.2% in thin pre-market trade, reflecting tech's sensitivity to sticky pricing narratives. The repricing caught desks off-guard, as consensus had baked in another early-2026 trim amid labor softening.

Context ties to 2025's volatile backdrop: GDP hit 1.8% despite Liberation Day tariffs and a historic shutdown, buoyed by resilient consumer spending and AI capex surging 69%. Payrolls decelerated on tariff and immigration disruptions, prompting 75bp of Fed cuts and QT's end on Dec. 1, yet inflation lingers in the upper-2% range with gradual passthrough. Dollar stabilized post a 10% H1 drop, supported by U.S. outperformance versus Europe; 10-year yields held near 4.2%, oil at $72, gold above $2,600 as hedges. Equity closes yesterday showed S&P at 5,650 (+0.1%), Nasdaq 18,900 (-0.3%), Euro Stoxx 50 flat, bucking prior dip-buying on cut hopes.

AI infrastructure remains the growth engine, with hyperscaler capex eyed for 33% rise in 2026 after last year's boom driving 26% tech investment growth. Tariffs act as one-time price hits, unlikely to derail 1.8% GDP, but limited labor slack keeps pricing elevated. Cross-asset links highlight dollar resilience offsetting rate cuts, while M&A issuance perks up on deregulation.

Thursday's April CPI release stands out because passthrough effects have materialized gradually; a print above upper-2% consensus would cement no-cut pricing and pressure equities.