May 25 – May 31

The dominant macro thread last week was energy‑driven inflation that kept the Fed’s preferred gauges well above target and forced a growing policy divergence across advanced central banks. BEA and Commerce releases showed headline PCE and core measures running materially above 2%—with monthly and trend reads that underscored persistent upside pressure—while CPI surprised to the upside in April. That mix, together with gasoline prices stuck above $4 per gallon, sustained higher inflation expectations and put term premia back into bond pricing, helping front‑end Treasuries outperform and flatten the curve. The Fed’s reaction function hardened accordingly: futures markets priced out near‑term cuts and left the option of further hikes on the table, whereas the ECB, BoE and RBA all signaled more hawkish stances—Australia already raised 25bp to 4.35% and analysts see a 25bp ECB hike as the default in June. Politically charged messaging around a potential U.S.–Iran deal to reopen the Strait of Hormuz added an explicit “if/when” to the inflation outlook, with officials arguing supply normalization would bring prices down but markets treating that as a contingent, not guaranteed, disinflation path. For investors this sets up continued sensitivity of risk assets to oil headlines and short‑dated rates: higher front‑end yields are likely to remain the immediate constraint on duration and leveraged strategies, while currency and cross‑border carry trades will be affected by the nascent central‑bank divergence in the weeks ahead.

Big‑ticket AI investment became a visible market force last week. Reports that ByteDance is considering up to $70 billion of 2026 AI infrastructure spending joined estimates that the hyperscalers will push aggregate AI capex into the high hundreds of billions—consensus figures climbed during earnings season and some desks now point to a path toward $700 billion. CoreWeave and hyperscale guidance amplify the same signal: cloud and specialized providers are scaling data‑center and GPU purchases aggressively. That capex thesis is directly linked to public markets: OpenAI’s confidential S‑1 filing (May 22) and plans for a Q4 2026 listing crystallize a new funding cadence for frontier AI, while Nvidia’s valuation surge past $5 trillion and outsized moves in AI‑server suppliers underscore how expectations about future compute demand are being reflated into equities. The spending boom is not risk‑free—consensus capex is explicitly sensitive to funding costs (the Fed’s policy range and a split 8–4 vote were repeatedly cited), and U.S. export controls tightening access to top‑end GPUs for Chinese‑linked entities complicate global procurement and profitability for NVIDIA and AMD. For markets, the upshot is persistent upside pressure on chip, server and power infrastructure names, alongside higher correlation among AI‑exposed stocks; the coming weeks will be defined by capex guidance updates, OpenAI IPO milestones and any regulatory clarifications about export controls that could reshape global compute supply chains.

Equity indices extended a powerful run last week—S&P 500, Nasdaq 100 and Russell 2000 all closed at fresh highs—with the rally notably concentrated in megacap tech and semiconductors. The Nasdaq closed at record levels and the Philadelphia Semiconductor Index marked a fifth straight week of gains; Alphabet jumped roughly 12% in the period and Apple rallied on earnings, while Intel and other chip names posted strong single‑day moves. That optimism has been reinforced by very tight corporate credit spreads and robust Q1 earnings, but the backdrop is paradoxical: the short end of the rates curve re‑priced materially higher (2‑year yields and Fed‑fed futures reflecting a higher‑for‑longer narrative) even as longer yields moved less, producing a flatter curve that elevates funding risk for levered strategies. Markets also punished idiosyncratic funding or execution failures—Roblox’s 18% plunge and an unnamed liquidity‑stressed stock’s 70% intra‑day drawdown—highlighting that index strength coexists with acute single‑name risk. Crypto, meanwhile, remained in a defensive “weak downtrend,” underscoring divergent risk appetites across asset classes. The practical implication for portfolio managers is twofold: monitor breadth and positioning in mega‑cap/AI longs for signs of roll‑off, and treat front‑end rate moves as the most likely trigger for rapid valuation repricing given compressed credit spreads and crowded option flows.

A striking regional contrast emerged: Hong Kong officials reported resilient growth—Q1 GDP up 5.9% year‑on‑year and a near‑43% surge in merchandise exports in April driven by AI‑related electronics—signalling strong external demand for chips and components. That boom underwrites parts of Asia’s recovery, but it sits against tightening U.S. export controls aimed at blocking NVIDIA and AMD’s most sophisticated AI chips from Chinese‑linked entities even when those entities operate outside mainland China. The result is twin forces of demand and restriction: robust Asian orders for AI hardware versus policy moves that could disrupt channels and encourage on‑shore or third‑country sourcing. For chipmakers and cloud operators the implications are concrete—revenue upside from sustained demand in export hubs like Hong Kong, matched by operational and legal uncertainty in serving Chinese‑linked customers. This dynamic raises the prospect of faster regional capex (to localize compute capacity), greater supply‑chain fragmentation and differentiated valuations for firms with China exposure. Over the coming week, investors should track trade and export‑policy announcements, corporate disclosure about client geography and supply‑chain routing, and any follow‑through in regional export and capex data to understand whether the hardware boom translates into durable revenue or becomes entangled in policy‑driven decoupling.