All three major U.S. stock indexes sink

Overnight Highlights

China’s social finance added 1.85 billion yuan in April, and M2 money supply increased 8.1% year-on-year. Wang Yiming, a member of the Central Bank’s Monetary Policy Committee, said that the financial system still maintains a strong support to the real economy.

The U.S. CPI surpassed expectations in April, with nominal CPI increasing 4.2% year-on-year, the highest since the financial crisis in September 2008, and core CPI increasing 3% year-on-year, the largest increase since January 1996. The money market expects the Fed to raise interest rates by 25 basis points in December next year with a 100% probability.

The Fed’s “second-in-command”, Vice Chairman Clarida reassured the market after the release of inflation data that the U.S. economy will reboot after the epidemic will be imbalanced, the uncertainty around inflation is unusually high, and inflation will return to 2% or slightly above the target in the next two years.

U.S. stocks fall together for three days, technology stocks lead the broader market again, with Chinese stocks outperforming

On Wednesday, May 12, as U.S. inflation data for April far exceeded market expectations, inflation trading logic continued to influence the performance of broad asset classes such as the stock market. Large technology stocks led the broader market decline for the third consecutive day, also causing the three major U.S. stock indices to fall for the third consecutive day.

The S&P 500 index opened down 0.7% and extended its decline to 1.4% in the first two hours of trading. The Dow opened down 146 points, then fell more than 360 points or more than 1%. The Nasdaq opened with a deep drop of nearly 180 points or 1.3%, and then expanded to over 2%.

FAANMG star technology stocks and chip stocks fell across the board. Tesla, Microsoft, Google, Facebook, Apple are down more than 2%; semiconductor sector ETFs fell more than 3%, applied materials fell more than 4%, TSMC fell nearly 4%.

But the banking, energy and oil sectors moved higher. Wells Fargo rose more than 2%, Bank of America, JPMorgan Chase, Goldman Sachs rose more than 1%, Occidental Petroleum rose 6.5%, Chevron Oil rose 2%. Analysis says these sectors perform better in a hyperinflationary environment.

At the beginning of the U.S. session, the Semiconductor ETF fell 2.38%, the Internet Stock Index ETF fell 1.66%, the Energy ETF rose 1.43%, and the Regional Banking ETF rose 0.7%. The “fear index” VIX volatility rose 9.5% during the day to 23.92, standing at a two-month high.

Meanwhile, the China Technology Index ETF rose 0.18%, while the Chinese Internet Index ETF fell about 1%. Ideal Auto rose nearly 5%, Tencent Music rose more than 3%, Weibo and Lufthansa rose more than 1%; Beili Beili fell more than 4%.

In other financial assets, spot gold fell more than $5/oz in the short term to $1,823.94/oz, down about 0.7% intraday. WTI crude oil rose 2.0% intraday to $66.61/barrel. The dollar fell 0.5 percent to 109.17 against the yen.

The 10-year U.S. bond yield climbed to 1.675%, up about 5.4 basis points intraday to a new high since April 30. The 30-year U.S. bond yield rose to 2.365%, the highest since April 5. The U.S. 10-year TIPS break-even inflation rate of 2.587% was at an eight-year high.

Meanwhile, the German 10-year Treasury yield advanced 2 basis points to -0.138%, a new high since May 2019. 10-year British bond yield rose 5 basis points to 0.89% for now. Money markets expect the Bank of England to raise rates to 0.25% by September 2022.

The U.S. money market is currently pricing in a 100% probability of a 25 basis point Fed rate hike by December 2022, compared to 88% before the release of U.S. CPI data