May consumer prices rose 0.5% from the previous month, exactly as expected. On a yearly basis, inflation came in at 4.2%, also in line with forecasts. Core CPI, which strips out food and energy, rose 2.9% from a year earlier, again matching expectations. The small relief came in the monthly core number: up 0.2%, below the 0.3% economists had expected.

In normal times, that would have been enough for a modest sigh of relief. Inflation was not hotter than feared, although it remains high, and the core reading was a touch softer.  However, U.S. futures stayed in the red even after the data: Dow futures were down 0.6%, S&P 500 futures lost 0.5%, and Nasdaq 100 futures fell 0.7%.This inflation data in line with forecasts doesn't trump expensive technology stocks, rising doubts about the AI boom, high oil prices, and renewed fighting between the United States and Iran. A 4.2% annual CPI rate is still too high for comfort. Core inflation at 2.9% is better, but not yet low enough to give the Fed a clean reason to start cutting rates.

The market has other problems. The first one is technology. The great AI trade is no longer moving in a straight line. Nvidia, Broadcom and Micron were all under pressure before the open, while the broader semiconductor sector has been swinging violently. The SOXX semiconductor ETF recently managed to rise sharply, fall even more sharply, and end lower in the same session.

Higher rates make that question sharper. When borrowing costs are low, investors can afford to be patient with distant profits. When rates stay high, tomorrow's earnings are worth less today. That is especially uncomfortable for companies whose valuations already assume a very bright future, preferably one with no unexpected invoices.

This is where Oracle comes: its results after the close will be treated as a test of the AI economy in the real world. Oracle sits at the crossing point of several major market themes: a traditional software business trying to prove it belongs in the AI era, a costly infrastructure push, and rising debt.

The second problem for markets is geopolitics. Renewed fighting between the U.S. and Iran has brought Middle East risk back into the center of the market conversation. According to reports, the U.S. carried out strikes on Iranian targets after a U.S. Apache helicopter was shot down. Iran then responded with attacks in the region, including Bahrain, Kuwait and Jordan. Trump's rhetoric has added to the sense that this is not a minor flare-up. Oil has moved higher, with Brent trading above $90 a barrel and, at one point, around $93.

The market has grown used to the idea that the Fed would eventually come to its rescue. But if inflation stays above target and oil remains elevated, the Fed's rescue kit looks limited. It can support growth, or it can fight inflation. Doing both at once becomes harder when geopolitics starts pushing up energy prices.

There is also a rotation under way beneath the surface. While technology has stumbled, more defensive and old-economy areas such as healthcare, consumer staples, real estate and parts of retail have held up better. The Dow has benefited from this shift because it contains more of the market's sturdy names: companies such as Coca-Cola, Procter & Gamble, McDonald's, Johnson & Johnson, UnitedHealth and Home Depot. They may not inspire the same excitement as AI chipmakers, but in a nervous market, dull can become a luxury product.

Today's economic highlights:

On today's agenda: China's monthly and yearly inflation rates, along with the PPI; industrial production in Italy; in the United States, the MBA 30-Year Mortgage Rate, monthly and yearly inflation rates, CPI, and EIA crude oil and gasoline stock changes, followed by the monthly budget statement; in Canada, the BoC interest rate decision and press conference. See the full calendar here.

  • Dollar index: 99.992
  • Gold: $4,140
  • Crude Oil (BRENT): $92.92 (WTI) $89.88
  • United States 10 years: 4.53%
  • BITCOIN: $61,161

In corporate news:

  • Alphabet's Google backs Anthropic in a $35 billion chip arrangement.
  • GitLab and Google expand their collaboration to offer the latest Gemini and Gemma models on GitLab's development services platform.
  • Defence Holdings taps Oracle as hyperscale cloud partner for its accelerator program.
  • Mastercard launches Agent Pay for machines to enable super-fast, always-on payments, backed by over 30 industry partners including Stripe, Coinbase and Adyen.
  • Applied Materials expands its Singapore manufacturing operations with a 500 MUSD new facility.
  • Polymer Factory Sweden and Thermo Fisher Scientific partner to evaluate materials and calibration products.
  • OpenAI is considering leasing a data centre in Ohio with support from Nvidia, according to The Information.
  • The European Commission has ordered Meta Platforms to restore access to WhatsApp for competing AI tools.
  • Super Micro Computer is set to raise $7 billion through a share issue to meet demand for AI servers
  • Starbucks is considering several options for its Japanese subsidiary, including a sale of its stake, according to Bloomberg.
  • IBM's CEO believes that AI will not necessarily lead to job cuts.
  • Boeing trails Airbus in terms of deliveries and orders in May.
  • Lockheed Martin has secured a $153.9 million contract extension from the US Navy.
  • CME Group is launching futures contracts on the Nasdaq CME Crypto Index.
  • General Motors will allow EV owners to sell electricity back to the grid and is focusing on sodium-ion batteries for its energy storage business.
  • Simon Property is launching a bond issue.
  • Samsung Electronics is investing $175 million and becoming the largest shareholder in a US genetics company.
  • Japan's Asics is considering spinning off its Onitsuka Tiger brand.
  • The partnership between WeChat and smartphone manufacturers threatens Apple's market share in China, according to Jefferies.
  • Today's key earnings releases: Oracle Corporation, Casey's General Stores, Flughafen Zürich, Pennon Group, Workspace Group, WH Smith, Frontier Developments, H-Power, Motorpoint Group.

Analyst Recommendations:

  • Borgwarner Inc.: UBS upgrades to buy from neutral with a price target raised from USD 61 to USD 95.
  • Cava Group, Inc.: UBS upgrades to buy from neutral with a price target raised from USD 85 to USD 90.
  • Globalfoundries, Inc.: Arete Research upgrades to buy from neutral with a price target raised from USD 37 to USD 95.
  • Hess Midstream Lp: Morgan Stanley downgrades to underweight from market weight with a target price of USD 38.
  • Nike, Inc.: RBC Capital downgrades to sector perform from outperform and reduces the target price from USD 70 to USD 50.
  • Pfizer Inc.: RBC Capital upgrades to sector perform from underperform with a target price of USD 25.
  • Renaissancere Holdings Ltd.: Citi upgrades to buy from neutral with a price target raised from USD 335 to USD 345.
  • Carvana Co.: Gordon Haskett maintains its hold recommendation and reduces the target price from USD 425 to USD 75.
  • Cleveland-Cliffs Inc: JP Morgan maintains its neutral recommendation and raises the target price from USD 9 to USD 13.
  • Conagra Brands, Inc.: Evercore ISI maintains its in-line recommendation and reduces the target price from USD 18 to USD 13.
  • Datadog, Inc.: Barclays maintains its overweight recommendation and raises the target price from USD 215 to USD 260.
  • Dexcom, Inc.: TD Cowen maintains its buy recommendation and raises the target price from USD 75 to USD 95.
  • Globalfoundries, Inc.: Arete Research upgrades to buy from neutral with a price target raised from USD 37 to USD 95.
  • Hewlett Packard Enterprise Company: Daiwa Securities maintains its neutral recommendation and raises the target price from USD 23 to USD 52.
  • Intel Corporation: Arete Research maintains its neutral recommendation and raises the target price from USD 20.40 to USD 99.
  • Jabil Inc.: Raymond James maintains its strong buy recommendation and raises the target price from USD 300 to USD 425.
  • Steel Dynamics, Inc.: JP Morgan maintains its neutral recommendation and raises the target price from USD 210 to USD 262.
  • The Trade Desk, Inc.: Arete Research maintains its neutral recommendation and reduces the target price from USD 22 to USD 16.
  • Zillow Group, Inc.: RBC Capital maintains its outperform rating and reduces the target price from USD 95 to USD 70.