Iran's Revolutionary Guard threatened on Wednesday to extend the conflict beyond its borders and the region if the US and Israel attack Iran again. This statement comes after the contradictory messages sent by the Trump administration about the possibility of a deal to end the war. On one hand, the US president declared before lawmakers at the White House that he would end the conflict with Tehran very quickly. On the other, he threatened new military actions against Iran, saying the country has few days to sit at the negotiating table and reach a deal.

Our Take

Geopolitical uncertainty continues and feeds global inflation expectations, pushing sovereign bond yields higher amid the growing bet that central banks may have to combat price pressures. Negotiations have not been suspended, but so far the US and Iran have been unable to close positions sufficiently to reach any kind of agreement.

The sharp rise in energy costs has pushed Eurozone inflation to maintain its upward trend. In April, the Consumer Price Index (CPI) stood at an annual rate of 3.0%, four tenths above the prior reading. The figure is in line with expectations and represents the largest cost-of-living increase in the region since September 2023. Meanwhile, the core inflation rate, which excludes the volatile prices of food and energy, decelerated one tenth in April to 2.2%.

Our Take

The inflation outlook now depends on how the conflict evolves, specifically, on when the Strait of Hormuz fully reopens. In a baseline scenario that envisages a relatively soon reopening, inflation will peak in the second quarter and return to more normal levels within approximately one year.

UK inflation decelerated to 2.8% in April, from 3.3% in March, thanks to the energy price cap set from the first day of the fourth month to help British households mitigate the sharp rise in fuel prices since the start of the war in Iran. Inflation thus reached its lowest level since March 2025. The core component also moderated, falling from 3.1% to 2.5% annually.

Our Take

Although the impact on British consumers remains contained, inflation is expected to continue rising as the higher energy costs from the war with Iran materialize, given that the UK is a net energy importer. At the same time, the April inflation data also reduce the probability of an interest rate hike by the Bank of England at its June meeting.

The People's Bank of China kept its benchmark lending rates unchanged for the twelfth consecutive month, as policymakers balance the need to support a slowing economy against growing inflationary risks. The one-year loan prime rate (LPR), which influences most corporate and household loans, stands at 3.0%, while the five-year rate, which serves as a reference for mortgage pricing, remains at 3.5%.

Our Take

Abundant interbank liquidity and the tone of the People's Bank of China suggest that authorities are in no hurry to cut rates, despite the persistent weakness in economic activity and lending. The news, widely expected by investors, had little effect on Asia-Pacific stock markets, more concerned about the increase in geopolitical tension from the Middle East conflict and elevated bond yields.

Corporate News

Nvidia reports this afternoon after the close in what would be one of the most important reports for markets since the start of the year. Consensus anticipates first-quarter revenues of US$78.5 billion, growth of more than 78% year-on-year that would set a new record. However, the market will pay more attention to the guidance for the second quarter and the rest of the year; comments on demand in China, where the Chinese government has still not approved purchases of H200 chips despite the US authorizing it in December; and any signal on the timeline and demand for next-generation Rubin chips.

Our Take

Nvidia is the world's most valuable company by market capitalization and the center of the AI cycle, but its shares have lagged if we compare their relative performance to the Philadelphia Semiconductor Index. The market is rewarding companies that manufacture memory chips such as Sandisk, Micron, and SK Hynix because their scarcity is immediate and verifiable, while Nvidia's narrative about the durability of the AI capex cycle needs quarterly confirmation. If Jensen Huang, Nvidia's CEO, can articulate a convincing vision of sustained demand in 2027 and 2028, the semiconductor rally could regain momentum.

Target reported comparable sales for the quarter ending May 2 with growth of 5.6% year-on-year — the largest since late 2021 and triple what analysts had estimated, under new CEO Michael Fiddelke in his first quarter at the helm. The company raised its revenue guidance for the year by two percentage points to approximately 4% growth. The strongest segments were health and wellness, baby, and toys. Shares were rising around 2% in pre-market trading, after accumulating a 30% gain for the year through Tuesday's close.

Lowe's reported comparable first-quarter sales of 0.6% year-on-year, slightly below consensus estimates, with earnings per share of US$3.03, beating expectations. The company maintained its full-year earnings guidance of between US$12.25 and US$12.75 per share. Like Home Depot, which reported the same 0.6% comparable growth last week, Lowe's feels the pressure of consumers postponing large projects amid rising mortgage rates and economic uncertainty. Lowe's shares were falling around 3% ahead of the open.

The to-do list

Today's quote…

"Where attention goes, energy flows."

— James Redfield