Friday, May 15

The dominant story was another repricing of U.S. inflation and Fed policy as Middle East supply risks pushed breakevens and nominal yields higher, even as large-cap tech held its bid. Five‑year U.S. breakeven inflation expectations have climbed to about 2.69%, the highest since early 2023, from 2.4% before the latest Gulf tensions, driving the 10‑year Treasury yield up toward 4.4%, its highest since mid‑2025. The move reflects markets baking in both higher oil and a Fed that stays restrictive for longer, yet the equity tape still showed investors reluctant to fade the AI earnings story.

In U.S. equities, the S&P 500 slipped as higher real yields weighed on rate‑sensitive sectors, while the Nasdaq outperformed on ongoing optimism around AI infrastructure and software earnings beats; information technology and communication services remain the year’s leadership cohort. The rates‑up, growth‑up pattern underlines that positioning is still concentrated in mega‑cap tech rather than a broad macro risk‑on. In Europe, major indices traded softer as the ECB’s hawkish rhetoric on the need to tighten again if inflation does not improve kept front‑end yields elevated and limited appetite for cyclicals.

Oil remained the key macro swing factor, with Brent holding near recently elevated levels after briefly touching around $126/bbl last week, as traders weighed the probability of a prolonged disruption in the Strait of Hormuz. Higher crude is feeding directly into the inflation narrative and term premium repricing, while also squeezing non‑energy corporate margins. Gold was steady after recent gains driven by demand for hedges against both inflation and geopolitical risk, even as higher nominal yields raise carry costs.

In FX, the dollar stayed firm against most majors, reflecting higher U.S. yields and safe‑haven demand tied to Gulf tensions, while EM currencies sensitive to oil and global funding costs underperformed. Crypto traded largely as a high‑beta expression of risk sentiment, lagging megacap tech as the market treated AI‑linked equities, not digital assets, as the preferred growth and liquidity proxy. The next focal point is the upcoming U.S. CPI print, which matters because services and shelter components must show clear cooling to validate current breakeven levels; a hot reading would cement higher‑for‑longer Fed expectations and test the resilience of the AI‑led equity leadership against a 4%‑plus 10‑year yield backdrop.