The Nasdaq is taking another hit this morning, with futures down over -1%, while S&P 500 and TSX futures are also pointing to a weaker open. Investors are absorbing several developments, including a hot inflation report out of the U.S. that showed headline CPI rising 0.5% in May and 4.2% year-over-year, the first consumer inflation print since Kevin Warsh’s appointment as Fed Chair (more on that below). Markets are also reacting to renewed geopolitical tensions after the U.S. launched retaliatory strikes on Iran that military officials described as “proportional”. Despite the recent turbulence in tech and semiconductor stocks, the weakness has remained relatively contained, for now. Nine of the 11 sectors in the S&P 500 finished higher yesterday, with only technology and energy ending in negative territory. Overseas, South Korea’s Kospi and Japan’s Nikkei fell -4.5% and -1.9%, respectively. In Japan, the yen weakened after the Bank of Japan announced that Governor Kazuo Ueda had been hospitalized and would likely miss next week’s policy meeting.
Inflation(y/y) in the U.S. accelerated to 4.2%, the highest annual rate since early 2023, driven largely by higher energy prices linked to the Iran war. On the bright side, underlying inflation remained relatively contained, with core CPI (m/m) rising just 0.2% from the previous month, below expectations, as prices for transportation services, health insurance, and new vehicles declined. The report suggests that while headline inflation remains a concern and could keep the possibility of future Fed rate hikes on the table, broader price pressures have not yet become entrenched across the economy. The softer core reading offset concerns about rising energy costs, though economists warn that prolonged disruptions in energy and fertilizer markets could eventually push inflation higher in the months ahead.
Stand pat. It’s decision day for the Bank of Canada, with the central bank widely expected to leave its policy rate unchanged at 2.25%, extending a pause that has lasted since late 2025. While Canada has technically recorded two consecutive quarters of slightly negative GDP growth, most economists and Bank officials argue the economy does not meet the broader definition of a recession, pointing to improving data such as April GDP growth and a surprisingly strong May employment gain of nearly 88,000 jobs. Inflation remains elevated at 2.8% due mostly to higher energy prices, but underlying inflation measures have continued to cool, suggesting domestic demand remains weak. As a result, the Bank faces conflicting signals, with economic growth softer than expected while still seeing inflation risks from energy prices. The most likely outcome is that Governor Tiff Macklem maintains a neutral stance, acknowledging weaker growth while keeping the door open to future rate increases if inflation extends beyond energy.
Canada’s trade surplus widened to $2.7 bln in April, the largest since January 2025, with exports driven by stronger energy shipments and a rebound in auto exports. Total exports rose 1.6% to a record $75.2 bln, with crude oil exports jumping 7% on higher prices and exports of passenger vehicles and light trucks reaching their highest level since Liberation Day, before U.S. auto tariffs were introduced. Canada’s trade surplus with the U.S. expanded to $9.5 bln, the largest since February of last year, highlighting the resilience of cross-border trade despite ongoing tariff disputes. While falling gold exports partially offset the gains, export volumes increased 3% for a third consecutive month, suggesting improving underlying trade activity. Imports also reached a record high, helped by strong demand for industrial products and a rise in computer-processing equipment used in data centers, reflecting continued investment in AI-related infrastructure.
The Canadian dollar fell to its weakest level of the year yesterday, hitting $1.3953, as investors expect the Bank of Canada to keep interest rates unchanged at 2.25%. The loonie has dropped more than 2% against the U.S. dollar since late April, pressured by falling oil prices and widening interest-rate differentials as U.S. bond yields rise faster than Canadian yields. Markets are expecting the BoC to hold rates steady today, reflecting concerns about weak economic growth despite recent improvements in employment. Some investors have also increased bearish bets against the Canadian dollar, suggesting sentiment remains negative.
The dash for cash. The AI theme remains front and center, with investors scrambling to fund exposure to the next generation of tech leaders. Demand for the upcoming SpaceX IPO has already exceeded available shares, while OpenAI has confidentially filed for an IPO and is exploring a tender offer to provide liquidity to employees. At the same time, China is planning to invest roughly $295 bln USD in AI infrastructure, including data centers and domestically sourced AI chips, highlighting the global scale of the AI investment race. Despite the news of big AI IPOs, some are remaining cautious, with history showing that major technology IPOs can be volatile after listing. 30 large tech IPOs over the past 15 years averaged a maximum drawdown of roughly 55% within their first year of trading, even when long-term outcomes were ultimately positive. With elevated valuations and rising interest-rate expectations, some are now raising concerns about the next wave of AI IPOs.
Not so fast. San Francisco voters rejected Proposition D, the so-called “Overpaid CEO Act,” which would have raised more than $250 million annually by imposing higher taxes on large companies where the highest-paid executive earned at least 100 times the median employee. The measure became a battle between business-friendly moderates and progressive groups looking for a greater share of the wealth generated by the city’s tech sector. Backed by prominent billionaires including Chris Larsen (Ripple), Sergey Brin (Google), and Mike Moritz (former Sequoia Capital partner), opponents argued the tax would discourage investment and undermine San Francisco’s economic recovery. Nearly 54% of voters rejected the proposal, as competitiveness concerns and the ability to attract investment ultimately outweighed calls for higher corporate taxes. Even in one of America’s most progressive cities, voters remain mindful of the trade-off between raising revenue and maintaining economic growth.
Diversion: Smooth moves
