US inflation rises to 4.2% in May, in line with expectations.
Core inflation rebounded 0.2% in the fifth month of the year, below the projected 0.3%, placing the annual rate at 2.9%.
Markets and Stocks
The major US indices are retreating moderately in futures trading following the May CPI release, with the core component growing less than expected. WTI rises to US$89, recovering part of the lost ground after the Iranian Revolutionary Guard announced missile and drone attacks on US military bases in Jordan, Kuwait, and Bahrain in retaliation for strikes on air defense and ground control sites near the Strait of Hormuz. The 10-year Treasury yield remains practically unchanged at 4.52% following the inflation reading. Gold retreats toward US$4,159 per ounce in its worst session in weeks. Today, Oracle publishes its quarterly results at the close, the next test of the durability of the AI rally following Broadcom's stumble.
Monitor
Bolsas / Exchanges
S&P 500
7,358
-0.50%
Nasdaq
28,888
-0.80%
Dow Jones
50,701
-0.40%
IPyC
65,500
0.10%
Monedas / FX (Foreign Exchange)
USD/MXN
17.4270
-0.10%
EUR/MXN
20.1209
0.00%
EUR/USD
1.155
0.10%
Índice DXY
99.85
-0.10%
Tasas / Exchange Rates
Treasury 2 años
4.12
-0.4bp
Treasury 10 años
4.53
0.2bp
TIIE 3 meses
6.49
2.0bp
M Bono 10 años
9.12
0.0bp
Commodities / Commodity Markets
Petróleo (Brent)
91.85
0.40%
Oro
4,151
-2.60%
Key points
The US and Iran exchange cross-attacks, casting doubt on the peace agreement.
China's industrial inflation climbs to its highest level in four years.
Japan's producer prices rise sharply due to higher energy costs.
For the rest of the day, the interbank exchange rate (pesos per dollar) could trade between $17.37 and $17.52 spot.
What you need to know about the economy and markets
US inflation accelerated again in May due to the rise in energy prices caused by the war with Iran, though the core inflation indicator rose less than expected. Headline inflation increased 0.5% in the month, bringing the annual rate to 4.2%, the largest increase since early 2023. The core component, which excludes food and energy, increased 0.2% compared to April and 2.9% annually.
Our Take
Overall, with the report meeting expectations but the core rising less than anticipated, it does not materially change bets on the Fed's future steps. Traders continue to price in a 25 basis point hike in December of this year. What it does do is that the core component's behavior could somewhat reinforce the argument that the peak of war-related inflation may be close to being reached.
The United States launched attacks against Iran after President Donald Trump said Tehran had shot down a US Apache helicopter in the Strait of Hormuz. The news portal Axios reported that the targets had been radar and air defense systems in Iran. This prompted a response from Iran, with attacks on several Gulf countries, including Kuwait, Bahrain, and Jordan.
Our Take
This escalation raises serious doubts about a possible peace agreement and keeps energy markets on edge. Although Iranian and US forces have been conducting increasingly serious exchanges since April 8, when the current ceasefire took effect, Trump has so far avoided considering any of those incidents as a violation of the truce.
In China, annual producer inflation rose in May to 3.9% annually, its highest level since July 2022, escalating considerably from April's 2.8%. Meanwhile, consumer inflation came in below consensus estimates. In the fifth month of the year, inflation increased 1.2% annually, a similar level to the prior month. On a monthly basis, consumer prices fell -0.1%.
Our Take
May's price report in China presents a significant dichotomy. Consumer deflation consolidates as a structural phenomenon, while producer prices surge due to exogenous factors of a geopolitical nature, with companies absorbing margins rather than passing cost increases on to selling prices.
Japan's producer inflation accelerated in May at the fastest pace in three years to 6.3% annually, as inflationary pressures from the war broadened. The Asian country, as a highly import-dependent economy for hydrocarbons, directly absorbs any disruption in crude and natural gas markets. On a monthly basis, the index advanced 0.9% from April.
Our Take
The report confirms that inflationary pressure in Japan's production chain has intensified notably. This reinforces the possibility of further interest rate hikes by the Bank of Japan, as the pass-through to consumer prices could materialize in the coming months.
Corporate News
Oracle reports its fiscal fourth quarter results at today's close, with consensus expecting cloud (OCI) revenue growing 92% year-on-year, an acceleration from 52% the prior year, and earnings per share of US$1.97 (+16% year-on-year), according to data compiled by Bloomberg. The central question for the market will be the financial sustainability of the transition: Oracle's free cash flow is projected at -US$3.5 billion in the quarter, and its capital expenditures have turned cash flow negative by more than US$20 billion in the prior two quarters. Oracle shares had recovered 27% from the start of the year through their 2026 peak, but have ceded ground along with the broader technology sector since Broadcom's stumble.
Our Take
Oracle is a different case from Broadcom, Marvell, or Snowflake, as it is not a chip manufacturer but a cloud infrastructure provider. Its concentration in OpenAI as its main client, which lost ground to Anthropic in the AI services segment, is a latent risk. If the report shows real OCI acceleration with an improved free cash flow profile, Oracle could become the catalyst that stabilizes the technology sector ahead of SpaceX's debut tomorrow.
Taiwan Semiconductor Manufacturing reported May revenues of US$13.2 billion, an advance of 30% year-on-year. Combined April and May sales grow approximately 24% versus the prior year, below the consensus target of 35% for the full second quarter, though analysts note that AI chip demand continues to exceed available manufacturing capacity.
Super Micro Computer announced a US$7 billion equity offering to finance the purchase of components needed to fulfill US$39 billion in AI server orders, according to a company statement. JPMorgan, Goldman Sachs, and Citigroup are leading the placement.
The to-do list
Monitor oil and markets throughout the day: the US launched attacks against Iran's radar and air defense systems after the downing of an Apache helicopter in the Strait of Hormuz, and Iran responded by attacking Kuwait, Bahrain, and Jordan, casting doubt on any peace agreement in the short term.
Review the implications of the US inflation reading: the 4.2% annual figure met expectations and core rose less than projected, keeping unchanged the bets on a 25 basis point hike in December, but markets will watch for any signal that the war-related inflationary peak is near.
Tonight at 6:30pm, enjoy the NBA Finals, New York Knicks vs. San Antonio Spurs, with family or friends.
Tonight, prepare a Yucatan-style lime soup, citrusy and comforting, perfect for midweek when the body calls for something warm and flavorful.
Dedicate 30 minutes to going for an outdoor walk; a week with military escalation, peak inflation, and markets on edge calls for deliberate moments of calm.
Today's quote…
"The only way to do great work is to love what you do."
— Steve Jobs
Alejandra Marcos amarcos@kapital.com
James Salazar jsalazars@kapital.com
Guillermo Quechol gquechol@kapital.com
Nahely Suasnavar nsuasnavara@kapital.com
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