SPX closed July down 0.13%. After all that happened, it feels anything but unchanged.

Much of the recovery last week can be attributed to gains in tech on Thursday and Friday, notably Microsoft and Amazon. The equal-weight index showed no such struggles, as the broader market was less volatile and leadership rotated. The Nasdaq entered correction territory just before the comeback was staged (Wednesday), with the main factors of the unwind being semiconductors and memory.

The FOMC meeting added to what was a crazy week. Rates were held, three officials voted for a hike, and Warsh again made price stability his central focus. Markets took a dovish read of the meeting, particularly as there were no explicit signs that tightening is on the way. However, the removal of forward guidance leaves markets to infer the path from each data print, creating more, not less, sensitivity.

OIS markets price a hike for the December meeting, but long-end yields are at levels that suggest the Fed is behind the curve. Curve steepeners are firmly in play.

The dollar took a soft interpretation of Wednesday, leading to its weakest week since January. Intervention in yen markets added to the USD/JPY move further, but we still see the broader dollar backdrop as balanced, despite last week’s decline.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Warsh’s Word Salad”

• “Co-Ordinated Intervention”

• “Global Equity Strategy”

• “Summary of House Views”

Warsh’s Word Salad

Financial conditions tightened regardless of the lack of move in the policy rate. 30-year yields climbed to their highest level in 19 years, 5.28%. The curve steepened, mortgage rates climbed, equities had their most adverse reaction to a meeting since late 2024.

Warsh offered no better than a word salad in his presser, giving almost no guidance on the conditions that would prompt a hike or the timing of the next move. Three members voted to tighten immediately, and little was done to explain how that disagreement might be resolved.

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- Takeaways from last week in cross-asset markets

- Thoughts and key considerations ahead of the upcoming week

- House views and expressions

US equities finished modestly lower, but the headline move understated another difficult week beneath the surface, particularly for the parts of the market most exposed to the AI investment cycle.

The S&P 500 fell 0.6%, the Nasdaq 100 1.6% as assessments of hyperscaler spending and technology valuations continued ahead of a crucial run of mega-cap earnings. Alphabet provided the first test, and the market didn’t like what it saw. Revenue beat, but management raised its 2026 capex forecast to as much as $205 billion, reigniting the debate over how much capital the AI buildout can absorb before investors begin demanding more evidence of returns.

Alphabet, Amazon, Meta, and Microsoft had already indicated combined spending of around $725 billion this year, and Alphabet’s updated guidance suggests that figure could move higher as the remaining hyperscalers report. More so, Alphabet generated negative quarterly free cash flow for the first time since becoming a public company. The tolerance for spending without an obvious near-term payoff is narrowing.

Goldman Sachs’ PB data showed hedge funds have net sold US tech at a record pace over the past eight weeks. The SOX index is now on course for its worst month since June 2022, and Mag7 lost almost $800 billion of market value on Thursday alone. Markets are also targeting large VIX call spreads in the 45-65 area for August and September. Pay up for protection heading into the thinner summer liquidity period.

The macro backdrop did little to provide relief. There were no major US releases and the Fed remained in blackout, leaving markets to continue repricing the policy path ahead of Wednesday’s FOMC meeting, in a new environment where Warsh’s reaction function to data is still unknown. OIS prices a full 25bp hike by September, with further tightening priced in early 2027.

The repricing supported another strong week for the dollar. Renewed haven demand from Iran and higher short-end US yields took the dollar close to its year-to-date high. USD/JPY drifted to near 164. Higher-beta currencies have begun to show larger moves as US rate volatility increasingly feeds into FX markets, particularly since the Fed stepped away from traditional forward guidance.

Treasuries reflected a similar dynamic, with the curve flattening sharply from the five-year sector onward. Put demand increased as investors hedged against further yield upside, although open-interest data suggests much of the move has still been driven by existing longs being liquidated rather than a large build-up of outright shorts. The FOMC is on Wednesday, and markets are taking the hawkish side.

This week, therefore, has the potential to determine whether the recent tech weakness remains a rotation or becomes broader. Microsoft and Meta report Wednesday, followed by Amazon and Apple on Thursday. After Alphabet, the market will look beyond headline earnings beats and focus on capex and margins as evidence that AI investment is generating acceptable returns.

The bar is high.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Oil Is Again the Macro Variable”

• “Policy Can Do Only So Much (JPY)”

• “Summary of House Views”

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Oil Is Again the Macro Variable

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- Takeaways from last week in cross-asset markets

- Thoughts and key considerations ahead of the upcoming week

- House views and expressions

US equities finished lower as technology stocks dragged the broader tape into the red, with the Nasdaq 100 and semiconductor complex once again absorbing the worst of the damage. Stretched valuations, growing scrutiny of hyperscaler capex, and fresh concern that cheaper Chinese AI models could change the economics of the infrastructure buildout created pressure. Moonshot’s Kimi K3 release revived the same type of questions that followed DeepSeek last year.

The banks offered a cleaner earnings story. Equity trading revenues were exceptionally strong across the major US lenders, with Goldman, JPMorgan, Bank of America and Morgan Stanley all posting major beats. That reflects a market environment that has been ideal for trading desks. The fact that bank shares saw only modest gains speaks more to expectations than to fundamentals.

Energy led as renewed US airstrikes in Iran kept crude risk alive. The market reaction was less severe than during the height of the conflict, but the sector still benefited from the return of the geopolitical premium. United Airlines showed the other side of that same move, with strong travel demand being overshadowed by higher fuel costs. The Iran conflict remains a meaningful margin and inflation variable for companies exposed to energy.

Macro gave equities some temporary support. June CPI and PPI both came in softer than expected, producing a dovish cross-asset reaction and giving the market its best session of the week before the technology headwinds took over again. But Warsh pushed back in congressional testimony, making clear that one soft inflation print does not amount to victory. The market has spent recent weeks fading the most aggressive hike pricing, while the Fed is still trying to preserve credibility amid inflation that remains above target.

Rates reflected that tension. The short end reacted to the softer inflation data, and SOFR options flow suggested investors are becoming less concerned about one or two hikes this year. Even so, OIS markets still price a 25bp hike in December. If oil-price pressure fades quickly from the data, that pricing could come under further pressure. If geopolitical risk keeps energy elevated, the Fed will have less room to look through inflation, even with softer core readings.

The dollar told a similar story. It sold off sharply after the inflation data but ended the week little changed, helped by short-covering into the weekend as traders hedged against another geopolitical flare-up. The broader trend has shifted toward dollar selling as the market fades the most hawkish Fed outcomes, but volatility remains unusually low. EUR/USD spent the week in a narrow range, suggesting traders still want clearer direction from the next Fed meeting before committing to a bigger move.

The market has entered a more discerning phase… Cheap AI has raised the bar for the companies selling expensive infrastructure, while the latest earnings season is showing clear winners and losers from the reallocation of technology budgets. The broader equity market can still hold together if breadth improves and inflation continues to soften, but the AI trade no longer has the same ability to carry everything indiscriminately. From here, Alphabet and Intel matter because they will tell investors whether AI spending is still accelerating or whether the market has begun to price in a capex cycle that is becoming harder to defend.

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Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Earnings Will Underpin Momentum

• “Reviewing a Policy Mistake”

• “Summary of House Views”

Earnings Will Underpin Momentum

For many of the last weeks, equities have been the front and centre of our commentary each week. Although our team covers and trades all markets, we understand that a large majority of portfolios concentrate around equity positions, and less so in institutional markets like rates or credit. The past few weeks have, for equity portfolios, been tumultuous.

Often we can set aside equities as our themes take hold of markets, focusing instead on more intricate themes developing in other areas. As the pre-August storm continues, the attention on equities matters more. No calm summer markets as of yet, although we are not ruling that out.

So where to start? Momentum has once again faced the chopper.

The current drawdown from momentum trades is as steep as during the last bear market and marks a new condition for the AI trade since it began. However, Friday’s rebound from the overnight lows in semiconductors and momentum looked like a squeeze after positioning had become too negative.

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- Takeaways from last week in cross-asset markets

- Thoughts and key considerations ahead of the upcoming week

- House views and expressions

A week of two halves, but the S&P 500 finished higher, as early-week geopolitical stress gave way to another late-week bid in technology.

Fresh attacks around the Strait of Hormuz and retaliatory US strikes in Iran briefly brought inflation concerns back into the conversation, pushing oil higher as a key inflation data print lies ahead this week. But equity markets proved more resilient than they looked at the start of the week, with dip buyers returning to semiconductors and communication services into Thursday and Friday.

Samsung’s disappointing earnings initially hit sentiment across the chip complex, weighing on Micron, Sandisk and the broader memory trade. That mattered because investors have become increasingly sensitive to any sign that expectations are running ahead of delivery. Yet the successful US debut of SK Hynix ADRs helped steady the sector, with the stock surging above its offering price after the largest-ever US listing by a foreign company. If Samsung provided the warning shot, SK Hynix provided the reassurance.

The sector rotation told a cleaner story than the index. Information technology, energy and communication services led, while materials, healthcare and staples lagged, marking a partial reversal of the recent defensive rotation, helped by evidence that the US consumer is not yet rolling over.

Macro was quiet, but not irrelevant. ISM Services was in line with expectations, and the employment component moved back into expansion for the first time since February. The FOMC minutes were uneventful, which may itself be a signal of the Warsh regime. The headline snapshot below is a great reminder that even in business economics, if you put two people in a room, you’re lucky to get only three opinions.

Rates reflected the oil move more than the data. Treasury yields rose across the curve as the ceasefire in Iran frayed, although demand at the 10-year and 30-year auctions remained strong. Real money still appears comfortable buying outright yield when levels are attractive, even as options activity suggests some investors are fading the remaining hike premium for later this year. The market is no longer in a simple “higher for longer” repricing, but it also is not ready to remove the inflation-risk premium while oil remains hostage to Middle East headlines.

FX was quieter, though that may not last. The dollar was broadly flat, but low G10 FX volatility is starting to look vulnerable as the market becomes more data-dependent ahead of CPI, PPI, and the next Fed meeting. With forward guidance being pulled back, each inflation print has more power to reset the curve and the dollar. Low FX volatility has been driven by low market conviction, rather than low macroeconomic uncertainty.

Our macro desk explored this topic in further detail and outlined their preferred vol plays.

APFX Research

Vol Is Too Cheap

G10 FX implied volatility is near multi-year lows, with the JPM G10 FX Volatility Index hovering around 5.87% on a one-month basis, close to its lowest levels since 2024. There are several structural and macro forces converging to suppress vol, but opportunities for both hedging and speculating on both sides are becoming apparent…

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a month ago · 6 likes · AP Research

The takeaway from last week: the market remains supported, but the sources of support are narrowing and becoming more conditional… AI still has buyers, especially where scarcity is obvious… the consumer is still spending, but not evenly… the Fed is quieter, but not easier… and the Iran risk premium has not disappeared in certain markets, even if equities are less reactive to every headline than they were earlier in the conflict.

As earnings season begins, the market’s tolerance for disappointment is likely to be far lower at the single-stock level than at the index level. That is the next phase: calmer indices, wilder stocks.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Duration Rotation”

• “Ahead of CPI…”

• “Summary of House Views”

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Duration Rotation

For much of the AI rally, time was treated as a free input. Investors were willing to pay today for earnings expected years into the future, confident that technological progress would eventually fill in the numbers. That bargain becomes less comfortable when the risk-free rate is rising, inflation is resurfacing, and oil is again helping to set the direction of bond yields.

This is the logic behind the emerging “duration rotation.” Equity duration is an imperfect concept, but a useful one. A company whose value depends heavily on distant cash flows is more sensitive to changes in the discount rate than one returning capital today. Technology, software, and other high-growth businesses sit at the long end of that spectrum. Banks, insurers, energy companies, and much of healthcare sit closer to the front.

The market recognises the difference. Semiconductors including Micron, Nvidia, Broadcom, and SanDisk have fallen sharply from recent highs, while banks, insurers, pharmaceutical companies, and healthcare stocks have assumed leadership. Since June, the broad pattern has been one of lower-duration sectors outperforming as higher-duration groups have lost momentum.

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US equities were on course for a clean holiday-week advance before technology stocks once again complicated the picture. A softer payrolls report, less hawkish language from Kevin Warsh, and further signs of resilience outside the AI complex all supported risk appetite, but the late-week semiconductor selloff kept a lid on the broader move. The S&P 500 finished higher, the Dow outperformed and the Nasdaq lagged, which tells the story clearly enough.

After using his first FOMC meeting to signal a much tougher inflation stance, Warsh sounded less aggressive, noting that inflation expectations and price risks had eased slightly in recent weeks… enough to push back against the idea of an imminent hike, which gave equities room to breathe.

Payrolls then added to the same message. June nonfarm payrolls came in well below expectations, with a negative two-month revision and a drop in participation. The expected summer hiring boost failed to appear, particularly in leisure and hospitality, which made the report feel softer beneath the surface as well as at the headline level. Equity futures initially rallied as markets pushed hike pricing from October to December. After several weeks of the Fed becoming an active constraint on risk assets, this was the first clean data point that gave investors permission to question the urgency of tightening.

Across rates, the curve steepened as the market reacted to Warsh’s softer tone and the weak payrolls print. The move in the dollar was equally straightforward, with the greenback slipping as traders faded the more aggressive Fed path. USD/JPY briefly moved back below 161, offering some relief to Japanese officials, though the pair remains close enough to intervention-sensitive levels to keep the Ministry of Finance in focus, particularly in thinner holiday liquidity.

The market has not lost its appetite for risk, but is becoming more selective. A softer Fed path, lower oil, and resilient non-tech sectors are enough to keep the index supported. But the AI trade is now more volatile, more crowded, and more exposed to changes in market structure than it was earlier in the year.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “US Labour Market and Rates Impact”

• “Small Themes, Defence Shines”

• “Software Strength, the Pain Trade”

US Labour Market and Rates Impact

The dominant macro event of the week was Thursday’s June payrolls print. The number came in at just 57,000, barely half the consensus expectation and a sharp loss of momentum from the spring run-rate (three consecutive beats). On the surface, the unemployment rate falling to 4.2% should have been hawkish. In normal times, a lower unemployment rate is not exactly an invitation for the Fed to relax.

But this wasn’t the market’s read. The unemployment rate fell because the labour force shrank. Participation dropped sharply, removing workers from the denominator and inflating the headline unemployment rate.

Treasuries rallied, the dollar sold off, and the market quickly stripped out the near-term Fed hike risk that had been building since the stronger May print. The 2-year yield fell around 5–6bps toward 4.11–4.13%, while the 10-year was little changed around 4.46–4.48%, leaving the curve with a cleaner path to re-steepen.

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US equities ended lower after a rough week for tech stocks, with the Nasdaq suffering the bulk of the damage as markets reassessed the valuations, positioning, and durability of the AI rally. A warning shot from Asia carried across to US equities, an upside surprise from Micron couldn’t hold for long, and by the end of the week, the sector breakdown looked much more defensive.

Leverage is very much at play here. Highly leveraged semiconductor ETFs create a messy gamma backdrop, forcing dealers to hedge aggressively as volatility picks up — and it has. Pressure transmits from derivatives into cash equities, which amplifies the moves in sectors which have become crowded after aggressive moves higher. The volatility spread between Nasdaq and the S&P is at its highest since 2020.

The rotation away from tech was softened by falling oil prices. Traffic through the Strait of Hormuz continued to increase, helping crude extend its decline and giving airlines, especially, a major boost. Lower fuel costs do not solve every consumer problem, but do help offset some of the pressure from higher rates and elevated prices. Without that move in oil, the equity selloff would have looked more severe last week.

On the macro side, May PCE came in slightly softer than expected and triggered a dovish cross-asset reaction. That reaction shows how sensitive markets have become to any sign of disinflation now that the FOMC is focused almost entirely on one side of the dual mandate. Fed speakers didn’t give investors any extra comfort. Goolsbee, Williams, and Kashkari all reinforced the message that inflation is too high, risks remain elevated and further tightening is still possible.

• Goolsbee: Core inflation is too high and is trending the wrong way

• Williams: Substantial risks to inflation remain; sees level at 3.5% at the end of 2026

• Kashkari: Sees need to hike this year due to elevated inflation

Bloomberg’s Fedspeak index shows continued hawkish language, despite Z6 pricing easing.

The Treasury curve rallied as markets smoothed out the path of expected hikes rather than pricing a more urgent tightening cycle. Monday may have been peak hawkish sentiment, but given how the rates trade has played out this year, that view may come back to bite us. The move helped fade some of the prior bear flattening, but it did not change the broader policy picture. The Fed remains live from July onward, and the next payrolls report now carries extra weight after Warsh’s recent hawkish reset.

The dollar continued to benefit from the macro backdrop. Institutional positioning has shifted more bullish as solid US data, the prospect of medium-term Fed hikes, and still-resilient equity inflows make the dollar attractive against lower-yielding currencies. The rally was limited by falling oil prices and month-end flows, but the structural tone is firmer than it was earlier in the year.

Elsewhere, Starmer is gone. Burnham is set to be next in command, but in hock to the bond market. We’ll have a specific note out on the UK in due time.

Lower oil and resilient earnings are keeping the broader equity market supported, but the leadership is becoming more fragile. In thinner summer liquidity, we see that as a caution to pay attention to.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Putting Debasement Through the Warsh”

• “A Bruising Round for the AI Trade”

• “Dollar Haven”

• “Defensive Allocation (portfolio update)”

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Putting Debasement Through the Warsh

The gold trade, or the debasement trade as it became known in more excitable corners of the market, took another leg lower last week.

What began as a fundamentally driven thesis morphed last year into something more speculative. It then ran into a sharp selloff in late January, before facing fresh pressure as oil soared and dollar demand refused to roll over. Sell your gold pieces for dollar bills (more on this later).

That is not to say there is no perfectly good rationale for central banks to hoard gold. There clearly is. But at the height of debasement-trade thinking, gold was being bought not only as protection against US financial warfare, fiscal deterioration, or the slow erosion of fiat credibility. A meaningful slice of demand for gold (silver and Bitcoin were speculative, too) was bolstered by the sense that the Federal Reserve was moving out of sync with a broader tide of central bank tightening.

In late March, we laid out why we still believe in the trade over the medium- to long-term, with a predominant focus on oil and dollar demand dynamics…

…However, gold now faces a fresh headwind to overcome before the upside case can reassert itself.

With new Fed Chair Kevin Warsh taking a more hawkish approach, the idea of the Federal Reserve being meaningfully out of step has been kicked into touch. Inflation expectations have fallen quickly enough to become a gift for long-end Treasuries, while the shift from expected rate cuts to expected rate hikes has pushed the Fed toward the more hawkish end of the central bank spectrum. That has supported the dollar. It has also made the short end of the Treasury curve look much more interesting, with 2-year yields now well above 4%.

Kevin Warsh’s reputation was already well known on Wall Street. Note the inflexion point across XAU, BTC, DXY, and 2s10s after his nomination.

For investors looking for something to speculate on, AI and chip stocks still offer the cleaner dopamine hit. Admittedly, that comment might sound off after last week’s price action, but the broader point holds. Precious metals and Bitcoin are no longer the obvious home for marginal speculative capital as they were when the market was convinced the Fed was about to turn dovish.

The sell-side has started to reflect that shift. Deutsche Bank cut its gold price forecast to $4,300 for the third quarter, down by more than a fifth from its prior outlook, and to $4,800 for the final three months of the year. That followed Goldman Sachs, which last week cut $500 from its year-end target to $4,900, as it now expects no rate cuts from the US central bank this year.

If the Fed has regained a hiking bias, it is hard to see how the debasement trade materially benefits in the short term. To be clear, the argument was never solely about monetary policy. Concerns over government borrowing, debt sustainability and the political incentives around inflation remain firmly in place. The US budget deficit is still running close to 6% of GDP, despite Treasury Secretary Scott Bessent’s pledge to halve it by the end of Trump’s term.

The debasement narrative is structural, and has not disappeared altogether. But structural stories still have to survive cyclical pressure, and right now the cyclical pressure is running in the wrong direction for gold.

A Bruising Round for the AI Trade

The AI trade had its first proper wobble in a while last week.

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That changed on Wednesday, at least temporarily, when Kevin Warsh delivered his first FOMC meeting as Chair. Rates were left unchanged, as expected, but the statement and press conference made clear that this is not a Fed trying to preserve optionality around cuts. The new message was inflation first, patience second. The shortened statement was blunt: “The Committee will deliver price stability.” Updated projections showed headline and core PCE revised materially higher, with nine officials now seeing at least one hike this year and six pencilling in 50bps or more.

Markets reacted accordingly. Equities sold off through the statement, press conference and into the close, while rates repriced sharply. OIS now prices a 25bp hike by October, a remarkable shift from the pre-war environment.

The front end bore the brunt of the move, with 2s5s close to inverting as policy expectations adjusted. The Fed reaction function has changed, and the market is still adjusting to what that means.

Yet equities again proved reluctant to stay down. Thursday’s rebound was led by semiconductors. Macro markets are trading a genuinely tighter policy path, while equity markets are still willing to look through it as long as AI-linked earnings and capital spending remain intact.

The dollar was the clearest macro winner. Even as oil prices fell toward the end of the week, the hawkish Fed repricing kept the greenback well bid and raised the question of whether the USD can finally break out of the structural weakness that defined the last 18 months.

USD/JPY moved back above the prior intervention zone, trading beyond 161, which keeps Japanese officials firmly in focus.

Markets have entered a more complicated phase. The geopolitical tail risk has eased, the AI trade remains alive, and dip buyers are still active. But the Fed has become an active constraint. From here, the market needs either continued AI earnings strength, a durable fall in oil, or a clean disinflation impulse to offset a policy path that is now moving in the wrong direction for risk assets. For now, equities are still climbing, but the macro floor underneath them has become noticeably less forgiving.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “AI Funders and Winners”

• “The Hawkish Hold Needs a Witness”

• “Sentiment Can Adjust Immediately, Oil Barrels Can’t”

AI Funders and Winners

The dominant theme over the past week has been a broadening of the AI trade away from the largest mega-cap names. Mag 7 and hyperscaler names are both nearly flat for the year.

For most of the past two years, exposure to AI was simple. Own the largest US technology platforms and own the semiconductor leaders. The trade is now starting to separate. Memory, semiconductors, custom chips, Asian supply chains, and data-centre infrastructure are among the leading beneficiaries of the AI capex cycle. The hyperscalers themselves are beginning to look more like the funding vehicle for the cycle than an upside expression of it.

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The S&P 500 ultimately recovered from Tuesday’s 2.3% intraday drawdown, with the Nasdaq 100 helped by Friday’s successful SpaceX debut. In a market increasingly starved of clean positive catalysts, the IPO gave investors one. SpaceX priced its $75bn offering at $135 per share, opened at $150 and closed at $160.95, giving the company a fully diluted valuation of roughly $2.2tn. That made it more than just another listing. It became a test of whether public markets still had the balance sheet, appetite and imagination to absorb a mega-cap growth story at a premium valuation.

For now, the answer was yes. Demand was reportedly multiple times oversubscribed, with several institutional orders of $10bn or more and visible participation from Gulf sovereign wealth funds. This mattered because it framed the listing as something bigger than a retail liquidity event. SpaceX has become a global capital allocation story, sitting at the intersection of space infrastructure, defence optionality, AI compute geography, sovereign ambition, and Elon Musk’s retail gravity machine. The first-day performance lifted risk sentiment into the close, but the real test starts now. If SpaceX continues to trade well, it can remain a risk-on barometer. If the stock starts to fade, the speculative bid that carried markets into Friday could disappear very quickly.

The macro backdrop is less forgiving. Last week’s ECB hike was the clearest signal yet that central banks are not ready to look through the Iran shock. The ECB raised the deposit rate by 25bps to 2.25%, its first hike since 2023, and framed the decision around the broader inflationary impact of the war rather than energy alone. We’ve now shifted our view from thinking the ECB would halt at one insurance hike to now looking for multiple further hikes this year, something we explained last week in “After You, Christine”.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Same Old Global Playbook”

• “Warsh in the Hot Seat”

• “UK Risk Premium Gets Two Votes”

Same Old Global Playbook

Markets keep deciding, after briefly noticing the risk, that it is still better to buy the same winners.

Wars, oil shocks, higher yields, and occasional policy scares are all still capable of producing a wobble. But they are not yet capable of producing a durable change in equity leadership. The market continues to come back to the same trade: AI-linked momentum, semiconductor earnings, hyperscaler capex, and the equity markets most exposed to that supply chain.

If that sounds too simple, remember that simple has been working… a lot.

Momentum remains the dominant factor globally, up nearly 31% year-to-date. Low-volatility stocks, by contrast, are down 23% and remain the worst-performing global factor. Value has made occasional appearances, but has not managed to take control outside a few regional pockets. The market keeps flirting with rotation, only to return to concentration.

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US equities began the week with another record on Tuesday, as another burst of AI enthusiasm carried the market higher. Nvidia (NVDA US) pushed deeper into the PC market, Alphabet (GOOGL US) raised $80 billion for AI-related capex, and Marvell (MRVL US) surged after Jensen Huang declared it could be the next trillion-dollar company.

By Friday, the same mega-cap and semiconductor names that had dragged the market higher since March became the source of the drawdown. Broadcom’s (AVGO US) disappointing forecast was the first real warning that AI expectations are now running ahead of even strong fundamentals. In a market priced for perfection, “good” no longer clears the bar.

The jobs report then turned a valuation wobble into a rates shock. May payrolls came in far stronger than expected, with positive revisions reinforcing the idea that the US economy is not slowing enough to justify easier policy. Fed pricing moved further toward hikes, while the dollar squeezed higher.

Geopolitics remained in the background rather than the driver. The US-Iran ceasefire looked increasingly fragile, with little progress toward reopening the Strait of Hormuz and fresh clashes testing the truce. Oil and the dollar still carried some war premium, but the dominant move was domestically in the US.

The CTA setup adds another layer of fragility. Goldman Sachs estimates that systematic flows now look asymmetric, with downside scenarios carrying far more potential selling than upside scenarios offer buying. The rally has leaned heavily on momentum, positioning, and forced participation. Once those flows turn, the same mechanics that supported the market can amplify the reversal.

The burden of proof has shifted. AI still has the structural story, earnings are not collapsing, and the S&P 500 remains close to highs after an extraordinary run. But the combination of stretched expectations, narrow leadership, and a Fed path moving toward hikes leaves the market much less forgiving.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Equity Risk-Off”

• “US Rates View”

Equity Risk-Off

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The market’s leadership remained heavily concentrated in AI beneficiaries. Micron crossed the $1 trillion market-cap threshold, while AMD and Broadcom advanced again. Dell was the standout, surging after lifting its annual sales outlook on the back of AI server demand as RetroTech continues its omeback.

Oil provided the other major support. Crude fell around 7% as hopes for a 60-day US-Iran truce extension gathered momentum, easing some of the inflation anxiety that had dominated the previous month. The energy sector lagged as a result. Lower oil gives equities breathing room, especially when the Fed is still more worried about inflation than growth. The problem is that the peace process remains incomplete. Mixed signals from both sides mean markets are pricing progress, not resolution.

The macro backdrop improved, but not enough to change the Fed story yet. Core PCE came in slightly softer than expected, giving equities a clean disinflation impulse for the first time in a while. Fed speakers remained firmly cautious, with several officials still openly discussing the possibility of hikes if inflation fails to cool.

Rates reflected that tension. Treasury yields moved lower on Iran optimism and softer inflation, but the curve itself was stable and demand at supply remained healthy. At the same time, options flow still showed traders paying for upside yield risk, with 10-year structures targeting levels above 5%. In FX, the dollar ended broadly flat as month-end support offset the risk-on selloff following positive Iran headlines. Spot markets still look ready to fade dollar strength on peace news, but options continue to price a more durable USD premium, especially in USD/JPY.

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Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Earnings Season Takeaways”

• “Japan’s $73bn Speed Bump”

• “NFP Preview”

Earnings Season Takeaways

With the bulk of corporates now having reported for Q1, there’s enough data to get clean takeaways from a helicopter view rather than just at a company-specific level.

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In what has become a predictable start to these week-ahead notes, US equities extended their winning streak to eight weeks, the longest run since 2023. Improving signals out of US-Iran negotiations helped ease geopolitical risk that has been present in markets since Q1. Oil was lower on the week off due to that same sentiment, but feed-throughs to inflation are already causing problems elsewhere. US rates have pivoted from two cuts priced pre-war to a hike before the year is out. But then again, equities are higher still.

Nvidia (NVDA US) was last week’s main course, but sang a familiar tune of realised coming in below implied vol. We’d call it a non-event compared to NVDA of old. Off 4.5% from prior Friday’s close. As for the results themselves, the flagship of the AI chip trade beat headline expectations, lifted its dividend and announced an $80 billion buyback. The disappointment in price action did not spread across the entire complex (SMH +3.5% on the week), with Dell (DELL US) and Qualcomm (QCOM US) still posting strong gains, but it did reinforce the point that the market is becoming more selective. AI is still the anchor, but not every beat is enough anymore.

UBS noted that the S&P 500’s recent six-week advance was the narrowest in 35 years, which captures the tension well: the index keeps making progress, but its leadership structure looks fragile. Positioning in semis is quite something.

The most important macro development was expressed most cleanly in rates. Waller struck a hawkish tone and backed, removing the easing bias from the FOMC statement, joining other officials who have pushed back against the idea that policy is close to turning easier. The FOMC minutes showed a majority of officials believe a hike could be warranted if inflation persists. Longer-term inflation expectations were revised higher.

A well-received 20-year auction at 5.122% on Tuesday helped stabilise bond sentiment mid-week. UK 30-year gilts surged toward 6%, and German bund yields also rose, making this a coordinated global bond selloff, not a US-specific story (market memo: “Making Sense of Yields”). Japan’s 30-year exceeded 4%, quite the move from near-zero yields just six years ago.

In currency land, the dollar remained steady, with dips on positive Middle East headlines being bought, suggesting underlying demand remains intact. The dollar bid is increasingly tied to Fed repricing and energy dynamics rather than safe-haven demand.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Rates: Cuts Are Buried, But Hikes Look Too Certain”

• “Equities: Shrugging Off Yields, China’s Chips, and WHAM”

• “Commodities: Returning to an Old Favourtie”

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Rates: Cuts Are Buried, But Hikes Look Too Certain

Kevin Warsh was sworn in last week, but not into the environment markets once imagined when his name first moved into serious contention.

The original Warsh trade was straightforward. A Trump-aligned Fed governor with a public record of criticising the Fed for keeping policy too tight and with a more optimistic view on AI-driven productivity… it all looked like a clear dovish impulse.

That was then.

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Earnings helped sustain momentum in the semiconductor complex for much of the week, with investors increasingly treating any short-term weakness as a buying opportunity rather than the beginning of a broader unwind. Q1 has shown that semiconductor earnings strength is fundamentally different from the late-1990s revenue mirage.

Geopolitics added another layer of pressure. During his visit to China, President Trump’s remark that the US did not need the Strait of Hormuz open triggered a sharp rebound in oil prices, reinforcing the view that even if active hostilities in the Middle East fade, energy markets are unlikely to return quickly to pre-war normality.

The final pressure point came from abroad. Political instability (“The Starmer Drama”) in the UK triggered a disorderly selloff in gilts, particularly in the long end, which spilt directly into global bond markets. The combination of higher inflation prints, elevated oil prices, and fiscal concerns abroad created a toxic mix for duration. Treasury yields accelerated sharply higher into Friday’s open, with the move in long-end rates finally becoming too large for equities to comfortably ignore.

That dynamic was particularly visible in the market leadership reversal late in the week. High-duration growth equities, especially speculative technology and non-profitable tech names, came under renewed pressure as real yields rose.

On policy, OIS markets now fully price a 25bp hike by March 2027, a remarkable shift from early March, when traders were still pricing cuts for late 2026. The direction of travel matters as much as the level itself.

In FX, the dollar benefited from almost every major macro theme simultaneously: higher oil prices, stronger rate differentials, geopolitical uncertainty, and weakness in sterling.

For months, AI enthusiasm, resilient earnings, and systematic inflows have been able to overwhelm macro concerns. Friday served as a reminder that there are still limits. As long-end yields move toward cycle highs and inflation remains sticky, the market’s tolerance for expensive duration-sensitive assets becomes increasingly fragile. The AI trade remains intact. The question now is whether it can continue carrying the broader market alone in a world where the cost of capital is structurally moving higher.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Inflation, Inflation, Inflation”

• “Semi’s: 2000 vs. 2026”

• “You Win Summ(it), You Lose Summ(it)”

• “Nvidia Earnings, Same Old Story?”

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Inflation, Inflation, Inflation

UK

The week ahead for the UK promises a lot to digest for markets, both on the political front and in the economic data.

Let’s start on the data side. April UK inflation is expected to deliver a modest fall, with headline CPI forecasted to slow 0.3% to 3.0% y/y, broadly in line with the Bank of England’s April MPR forecast, while core CPI is expected to fall more sharply, down 0.5% to 2.6% y/y.

This might surprise some, given the UK economy’s sensitivity to the energy spike. Yet if we look below the surface, the headline print should be restrained by softer services inflation, even as the energy complex moves higher. Pump prices are expected to rise materially as the shock continues to feed through to petrol and diesel, but this is partly offset by the fall in the Ofgem dual-fuel cap following measures announced in last autumn’s Budget.

If we had to summarise what the inflation print is likely to show us, it’s that services disinflation is doing the heavy lifting, energy is moving in the wrong direction, and food remains sticky but not accelerating. However, this print shouldn’t be treated with much slapping on the back from politicians or even from MPC members. There’s still plenty of work to be done on price levels, and the caution is not to get lulled into a false sense of security here.

Now let’s pivot to politics, which has been the main driver behind the spike in Gilt yields, particularly at the long-end.

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Technology once again carried. The semiconductor complex remained the clearest expression of the market’s conviction around the durability of the AI capex cycle, with Advanced Micro Devices (AMD US) delivering the standout report of the week. The company’s stronger-than-expected sales outlook reinforced the view that hyperscaler and enterprise spending on AI infrastructure remains robust, even after months of investor concern around saturation and monetisation. Importantly, the strength was not confined to GPUs. AMD highlighted renewed demand for CPUs tied to AI workloads, a reminder that the buildout story is broader than a single chip category. The positive read-through extended across the ecosystem. Akamai Technologies (AKAM US) rallied after securing a major agreement with Anthropic, underscoring the degree to which AI demand is beginning to pull through into adjacent infrastructure providers.

Beneath the surface, however, the rally retained a distinctly geopolitical undertone. The fragile ceasefire between the US and Iran held together for another week, helping suppress the tail-risk premium that had dominated markets earlier in the quarter. Yet the absence of meaningful progress on reopening the Strait of Hormuz continues to leave a structural risk embedded within energy markets. Traders have become more comfortable fading escalation headlines, but not fully comfortable removing the risk premium altogether.

On the macro side, the latest payrolls report effectively reinforced the market’s baseline assumption: the Federal Reserve remains firmly on hold. The data was neither weak enough to force easing discussions nor hot enough to revive serious tightening fears. Wage growth continued to moderate, revisions softened the headline strength, and the broader labour-market picture still points toward gradual cooling rather than collapse. The Fed is trapped in wait-and-see mode, with officials increasingly acknowledging inflation risks while simultaneously resisting the idea that hikes are imminent.

Rates and FX markets reflected that equilibrium. Treasury curves finished little changed as oil price fluctuations continued to dominate day-to-day moves more than domestic data releases. In currencies, the dollar ended broadly flat, though USD/JPY remained the key source of volatility amid growing suspicion of renewed Japanese intervention activity. More broadly, FX markets appear stuck in a holding pattern, unwilling to fully re-engage structural dollar bearishness until the geopolitical backdrop becomes cleaner.

The bigger picture remains one of a market climbing despite, rather than because of, the macro environment. Earnings are holding up, AI spending remains relentless, and positioning dynamics continue to provide support on pullbacks. But underneath the surface, the rally is increasingly reliant on a narrow set of conditions remaining intact simultaneously: contained geopolitical risk, stable growth, moderating inflation, and continued faith in the AI investment cycle. For now, markets are willing to extend that benefit of the doubt.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Party Like It’s 1999”

• “Energy Keeps CPI Warm (US Inflation Preview)”

• “Global Rates Rundown”

Party Like It’s 1999

Equities have reached the part of the move where momentum is both the argument and the risk. Following one of the strongest short-term rallies in modern market history, the S&P 500 has broken into fresh all-time highs, with its 14-day RSI now sitting around 72. In isolation, that normally argues for caution. Markets that move this far, this fast, tend to digest the move. Two-week forward returns after similar momentum bursts have historically been weaker, as some degree of mean reversion usually follows the initial chase.

But overbought is not the same thing as bearish. It is often the condition of a market with genuine force behind it. The ability to get this extended, particularly after a “blue sky” breakout into all-time highs, is also evidence that the underlying trend has become durable.

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The S&P 500 notched a fifth consecutive weekly gain, grinding to fresh record highs as month-end flows and a late-week risk bid helped offset what was otherwise a choppy, headline-driven stretch. Friday’s push higher, driven by institutional rebalancing and renewed optimism around US-Iran negotiations, masked a more uneven tone beneath the surface, where dispersion across sectors and within mega-cap tech continues to define the market.

AI beneficiaries once again led from the front. Strength across semiconductors remained the clearest expression of the current macro regime (“chips as macro”). The latest round of mega-cap earnings highlighted a more nuanced reality. Alphabet (GOOGL US) and Amazon (AMZN US) were rewarded for tangible progress, while Meta Platforms (META US) and Microsoft (MSFT US) were punished for leaning further into spending without yet delivering a commensurate payoff.

Outside of tech, leadership broadened modestly. Caterpillar (CAT US) provided a reminder that the AI buildout extends beyond silicon, with power and construction demand feeding into industrial upside. Energy also continued to grind higher as geopolitical tensions lingered, even as the market has grown more accustomed to trading around the Iran conflict rather than through it.

Under the surface, however, the setup is becoming more technical. With month-end rebalancing behind us, attention shifts to systematic flows, where Goldman Sachs flags CTAs as potential sellers across scenarios in the week ahead. That introduces a degree of fragility to what has been a flow-driven advance, particularly given how much of the recent strength has come from positioning resets rather than fresh fundamental conviction.

“The one-month change in US positioning across the major systematic cohorts is the 2nd largest re-leveraging in our dataset going back to 2016. Systematics have bought almost $80 billion of US equities in the past month, and CTAs are now long $44 billion of US equities.”

Macro signals remain broadly supportive, but not emphatically so. The Federal Reserve delivered a hold as expected, though the presence of multiple hawkish dissents complicates the path forward for policy under incoming leadership. Growth data continues to show resilience, particularly in business investment and consumption, but the mix is not clean enough to shift the policy narrative decisively. Markets briefly reverted to a more textbook reaction function on softer ISM data, suggesting that the distortion from geopolitical noise may be fading at the margin.

In rates, the tone was more cautious. Treasury yields edged higher following the FOMC, with the long end approaching key technical levels that could act as a volatility trigger into May. In FX, dollar weakness was more about external shocks, most notably intervention in USD/JPY and a hawkish tilt from the ECB.

That all results in an equity market that continues to move higher, but with a shifting burden of proof. AI remains the anchor, flows remain the accelerant, and geopolitics remains the wild card. The trend is intact, but the composition of the rally (narrower leadership, greater sensitivity to earnings quality, and growing reliance on technical support) suggests that the next leg higher will require more than just momentum.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Software and Private Credit”

• “The Market Chooses Its Own Adventure”

• “Yentervention”

• “A Broken Cartel”

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Software and Private Credit

For much of the last six months or so, private credit has traded as a software derivative. Private credit funds lent heavily to software businesses during the last cycle, and the market has spent this year marking down anything that looks vulnerable to AI substitution, lower seat growth, or weaker pricing power. Last week brought the first real shift to that narrative.

Ares (ARES US), Blackstone (BX US), and Blue Owl (OWL US) all moved to reassure investors last week on software exposure, with scorecards, outside consultants, and portfolio reviews designed to separate actual AI vulnerability from market panic. Blackstone’s BCRED said less than 5% of investments faced AI headwinds, Ares said 85% of its software-oriented investments were low risk, and Blue Owl reportedly found “minimal” risk after re-underwriting loans for AI vulnerability.

There is an obvious “talking your own book” element here. That is not a criticism of them. Private credit is built on confidence, marks, funding access, and the continued belief that senior secured exposure can survive equity volatility. Nobody in this ecosystem has an incentive to declare the collateral impaired before the cash flows force the conversation. The question is, however, whether the next refinancing cycle agrees with their scorecards.

The other narrative shift came from software itself. Atlassian (TEAM US) was the cleanest expression last week. TEAM surged after earnings, with revenue and adjusted earnings ahead of expectations, cloud revenue growth of 29%, and management leaning hard into the idea that AI is a product accelerant rather than a terminal threat. After months in which “AI risk” was enough to flatten almost anything with recurring revenue, the market is finally rewarding a software company for showing resilience and a path toward profitable growth.

Don’t get us wrong, this one shift does not kill the software bear thesis, but we will see a more selective market approach to software going forward.

For markets, that is the important transition. The first phase of the trade was indiscriminate. Software was sold first and analysed later. Private credit firms with perceived exposure were dragged into the same bucket. The next phase should be more dispersion-led. Some software companies will show that AI improves distribution, workflow depth, and customer value. Others will discover that AI compresses pricing, reduces seats, weakens moats, or gives customers a credible reason to renegotiate.

Our read is that last week marked a shift from panic to underwriting. That is constructive for the best software names and the cleaner private credit platforms, but it does not remove the fault line. That is where we think the market will spend the next few months. Not in a broad private credit collapse, and not in a full exoneration of the asset class either. More likely, we get a slow separation between managers that can prove genuine insulation and those that merely disclose it.

The indiscriminate short-software / short-private-credit trade has probably lost its momentum, and the easy leg is behind us. The software names that can show AI-enhanced demand, stronger retention, and improving profitability will outperform, especially out of oversold conditions.

In case you missed it, we released our latest primer over the weekend mapping private credit and the software risks.

The Market Chooses Its Own Adventure

US equities pushed to fresh highs and capped their best month since 2020, even as the Fed delivered a more divided message and Japan stepped back into the yen market. In another regime, either of those stories would have been enough to cause headaches. A fractured Fed path would have been the rates story. Yen intervention would have been the global macro story. Instead, both were treated as supporting characters, all to the leading role which still belongs to AI.

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Technology, as is often the case, again did the heavy lifting. At this stage, the equity market is a continuation of the “chips as macro” regime, where incremental demand signals from AI infrastructure drive index-level performance.

Elsewhere, the rotation out of defensives was notable. Healthcare lagged amid a combination of weak earnings and softer prescription data, with pressure on weight-loss drug narratives feeding through to the broader pharma complex. Financials also underperformed, weighed down by disappointing results and a lack of clear participation in the broader rally. The divergence highlights a market that is still selective, rewarding growth visibility while penalising anything that hints at cyclical or structural fragility.

Macro remains in a holding pattern. The absence of major data or Fed communication ahead of the blackout period has left markets trading predominantly on geopolitical headlines and earnings anticipation. Strong retail sales provided a reminder that the US consumer remains intact for now, but the broader picture has not shifted materially. Policy expectations are largely unchanged, and the market continues to operate within a narrow band of outcomes: resilient growth, sticky but manageable inflation, and a Fed that remains on hold unless forced to act.

Across assets, volatility continues to compress. FX markets were notably subdued relative to recent weeks, with the dollar trading in line with incremental Iran-related developments rather than leading them. Risk reversals point to a market that is tactically long USD on geopolitical uncertainty but structurally biased toward weakness over a longer horizon.

In rates, the move higher in yields, particularly in the 2y–5y, reflects a modest re-pricing of risk rather than a decisive shift in the policy outlook.

The broader takeaway is that equities are grinding higher without a clean macro anchor. The leadership remains narrow and micro-driven, the drivers remain flow-driven, and the geopolitical backdrop continues to inject episodic volatility. As long as the AI capex narrative holds and ceasefire dynamics avoid a renewed escalation, the path of least resistance may still be higher. But the market is increasingly behaving like one that is being pulled upward by momentum.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Micro Is Leading”

• “Carry Trade Indication”

• “The Reverse ‘Saudi Put’ on Oil”

• “A Crypto Stealth Rally”

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Micro Is Leading

Macro factors have dominated equity direction in recent weeks. The S&P 500 moved lower in a relatively orderly fashion, as markets priced in war risk and attempted to map the economic spillovers from the Middle East. Positioning played a role here, with little appetite to press shorts. Memory of last April’s squeeze is still fresh.

As tensions between the US and Iran appeared to peak, markets were quick to rebuild length and chase the rebound, helped along by the reassertion of well-worn themes.

Last week marked a shift. Micro factors re-emerged as the primary driver, even if the headline index barely moved. E-mini S&P 500 futures finished the week up just 0.4%, masking a more active underlying tape. The index may look flat on the surface, but beneath it, areas of the market are running hot.

Semiconductors.

April has not yet drawn to a conclusion, but semiconductors are firmly living in the right tail.

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A 13% drop in WTI crude acted as the immediate release valve, easing inflation expectations and unlocking a broad rotation into fuel-sensitive sectors. Autos, airlines and discretionary gained, while the unwind in energy positions marked a clean reversal of one of the most crowded trades of the conflict period. Beneath that, however, the move had the hallmarks of a classic positioning squeeze. Heavily shorted baskets surged double digits, and both dealer desks and systematic flows pointed to continued mechanical buying.

Goldman Sachs estimates a further $70 billion in CTA demand for global equities over the coming sessions, on top of already significant inflows ($86 billion last week), suggesting the rally has been as much about forced participation as about improving fundamentals.

“Previous episodes of accelerated demand have seen short-term consolidation, followed by medium-term strength for the S&P 500,” Goldman Sachs’ Brian Garrett wrote, noting the US index is typically up by an average of 2.2% a month after such a buying spree, and up 8.2% three months later.

Earnings season has not yet provided a clean fundamental confirmation of the move, but it validates an economy that is neither overheating nor rolling over, giving a sturdier foundation for markets beyond the near-term bounce. Bank results were broadly underwhelming, with strong equity trading offset by softer FICC performance, pointing to a more mixed underlying environment than headline index levels might suggest. The market has been willing to look through this for now, aided by upward revisions to full-year earnings expectations, particularly in sectors tied to energy and semiconductors.

Macro data offered a constructive, if incomplete, backdrop. Softer-than-expected PPI and stronger regional activity surveys helped reinforce the idea that underlying demand remains intact as inflation pressures begin to moderate.

Alongside this, Fed communication continues to emphasise patience, with policymakers broadly aligned around the view that current policy is appropriately restrictive given lingering uncertainty on inflation. The modest re-pricing of rate cuts in OIS reflects that balance, shifting back toward easing (white) but without the conviction seen earlier in the year (blue).

Across assets, the response has been more nuanced than the equity rally might suggest. The dollar weakened sharply as geopolitical risk premia unwound, with positioning and hedging flows now pointing back toward a broader structural downtrend. The decline in oil has allowed for a partial re-steepening of the curve as front-end easing expectations returned. Options positioning, particularly in the 10-year sector, indicates growing confidence in lower yields into the next data cycle.

Taken together, the past week marks a clear inflexion in sentiment, but not necessarily a resolution of the underlying macro tensions. The market has moved quickly to price in a best-case near-term outcome (stable geopolitics, easing inflationary pressures, and resilient growth), but that equilibrium remains fragile. If the ceasefire holds and oil remains contained, there is scope for positioning and flows to carry equities higher in the near term. However, the speed and nature of the rally suggest it is still being driven more by the removal of tail risks than by the emergence of a new, durable macro regime.

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Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Thematic Leaders and Beta Chasing”

• “EZ Rates: Between the Baseline and Adverse”

• “Play the Dollar Range”

Thematic Leaders and Beta Chasing

US Equities

What stands out in the current tape is the clarity of behaviour. Leadership has re-emerged quickly, and it is unmistakably high beta. The market has pivoted from discounting a meaningful deterioration in growth to re-embracing the same pro-cyclical, momentum-driven themes that defined the pre-conflict regime.

The cross-section of returns reinforces that point. Month-to-date performance is dominated by Q1 leadership, with capital rotating back into the most reflexive expressions of the AI buildout. Memory has reasserted itself at the centre of that trade. Names such as Teradyne (TER US), Micron Technology (MU US), and Sandisk (SNDK US) — all of which delivered outsized gains into the pre-conflict peak — are once again among the primary beneficiaries of the rebound. The reappearance of these names in the top decile of performance is a re-leveraging of existing narratives.

Alongside this, the speculative layer of the market is behaving as one would expect in a positioning-driven rally. High short-interest baskets, meme equities, and de-SPAC cohorts have all materially outperformed, with month-to-date gains exceeding 20%. This reflects a mechanical unwind of bearish positioning rather than any fundamental reassessment of underlying cash flows. Short covering remains a core driver of the move, and it tends to be self-reinforcing in the early stages of a squeeze. Even Alt AMs and BDCs had a good week.

The chase for speculative beta is also prevalent in the market right now. Short interest, meme stocks, and de-spac baskets… all more than 20% higher month-to-date. The former is a fundamental example of the short covering underscoring this move higher.

Where the signal becomes more nuanced is in the options market. In a typical relief rally, implied volatility compresses in line with rising spot. Yet that relationship has loosened. While the S&P 500 has advanced, implied volatility (proxied by the VIX) has not declined proportionally. Instead, it remains relatively firm, reflecting a market that is not simply adding exposure but actively paying for convexity on the upside.

Flow data corroborates this. Institutional call-put ratios have reached their most elevated levels since late 2024, while call skew has repriced sharply higher. Non-0DTE index call volumes have accelerated, and single-name call demand has intensified. Investors are expressing bullish views through leverage.

This matters for the durability of the move. The current options positioning, particularly into expiry this Friday, leans heavily toward calls on a delta-adjusted basis. SpotGamma estimates suggest the latest expiry profile is among the most call-skewed on record, following a double-digit rally in the index over a compressed time frame. That creates a dependency on continued dealer hedging support. Should flows slow, or should investors choose to monetise rather than roll exposure, the hedging dynamic flips. Dealers would move from buyers of strength to sellers of weakness, amplifying any downside move in spot. After all, the tail risks have lessened, but it’s not out of the question for a spanner to be thrown into the works of the negotiation.

In that sense, the rally is increasingly endogenous. It is being sustained by flows that, if reversed, would act in the opposite direction with similar force. That does not invalidate the move, but it does make it more fragile than the surface price action suggests.

From an allocation perspective, the distinction between beta and fundamentals is important. The former has already moved aggressively; the latter still offers more durable entry points. Two areas we like:

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The bulk of the gains were concentrated early in the week, as confirmation that the ceasefire was holding triggered a broad unwind of defensive positioning built during the height of the conflict. By Friday, momentum had already begun to stall ahead of scheduled US-Iran negotiations, underscoring how dependent the rally remains on incremental geopolitical progress. The price action continues to reflect a market that is trading headlines, with conviction fading as soon as the news flow turns less constructive.

Sector dynamics reinforce that interpretation. The Magnificent Seven reasserted leadership, with technology and communication services driving index-level gains, while semiconductors benefited from renewed optimism around AI-linked investment. Announcements from CoreWeave, alongside incremental demand signals from Meta, Anthropic, and Alphabet, provided a reminder that the capex cycle remains intact despite recent volatility. However, the divergence within tech remains notable. Software names continued to lag sharply as the latest wave of AI product releases revived disruption concerns, leaving the sector caught between structural growth and existential risk.

Macro signals continue to complicate the picture. Inflation data offered some near-term relief, with headline and core CPI both coming in slightly below expectations. However, forward-looking indicators paint a less benign picture. Elevated services inflation and a sharp rise in inflation expectations suggest that the second-round effects of the recent energy shock may still be ahead. At the same time, hawkish undertones in the FOMC minutes highlight that the bar for policy easing remains high, even as growth signals show signs of softening.

Across assets, the adjustment has been orderly but incomplete. The dollar weakened on the ceasefire news, retracing much of its year-to-date strength, though the persistence of a positive oil-dollar correlation points to a market still anchored in geopolitical dynamics. In rates, the move has been more muted, with the Treasury curve stabilising after an extended flattening phase. The lack of a meaningful rally in bonds, even as risk assets bounced, suggests that markets are not yet prepared to price a material shift in the policy outlook.

Taken together, last week’s rally looked like a release valve.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “No Deal to Back Up the Rally”

• “Earnings Season Opens”

• “From Missiles to Models”

No Deal to Back Up the Rally

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This week, our market wrap has been jointly composed in collaboration with . You’ll notice some of his trademark charts and thoughts interspersed through the article. For anyone unfamiliar with his work, you can access a free trial of his Substack content here.

Last week was effectively decided in a two-day window. Tuesday and Wednesday delivered the entirety of the S&P 500’s 3.4% gain, as headlines pointed to a potential de-escalation in the Iran conflict. That was enough to trigger a sharp unwind in bearish positioning, with short covering across hedge funds, CTAs, and systematic strategies driving a broad-based squeeze. Flows from pension rebalancing and quarter-end dynamics added fuel, turning what might have been a modest bounce into a more aggressive rally. By Thursday, the move had already begun to lose momentum. President Donald Trump’s renewed hardline stance on Iran briefly knocked sentiment before dip buyers stepped in, leaving the index marginally higher into the close.

Goldman Sachs and JPMorgan desks both pointed to the bounce being led by an unwind of extreme positioning, rather than a sudden change in investor sentiment.

Investors are in one of the biggest “rushes to cash” in history:

Semiconductor and tech hardware stocks led gains, not on improved fundamentals, but as positioning snapped back. Energy (the market’s leadership cohort for much of the past month) lagged sharply despite brent breaking to multi-year highs, a sign that the trade had become crowded and vulnerable to profit-taking.

Private credit continues to cast a shadow over financials, with Blue Owl limiting redemptions across two funds after a surge in withdrawal requests. The move reinforces the broader theme of tightening liquidity within the space, and the knock-on effect was visible across listed asset managers. Consumer staples, typically a defensive refuge, also showed signs of strain, with mixed performance reflecting uncertainty around both input costs and corporate activity.

The dollar softened modestly on the week, but broader dynamics remain intact. In rates, there was a partial reversal of the aggressive flattening seen in recent weeks, with 5s30s steepening modestly as growth concerns begin to challenge the inflation narrative at the margin. Options markets are beginning to reflect that tension, with positioning suggesting a growing appetite for downside yield moves even as inflation risks persist.

Markets are oscillating between two competing forces: the hope of de-escalation and the reality of a macro environment that has already tightened materially. The fact that a modest improvement in headlines can trigger such a sharp squeeze speaks to how extended positioning had become. But without a sustained shift in either geopolitics or inflation dynamics, rallies are likely to remain fragile. For now, this looks like a reset in positioning rather than a reset in trend.

From the visuals that Macro Charts is observing, speculative ‘animal spirits’ have collapsed since October — but are still declining and could go lower. Buy signals are pending:

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “NFP: Strong Headline, Softer Reality”

• “Energy Shock Hits CPI”

• “Oil’s Physical Air Pocket”

NFP: Strong Headline, Softer Reality

US job growth rebounded in March, with nonfarm payrolls rising by 178,000 (vs 60k expected) and the unemployment rate edging down from 4.4% to 4.3%. In fact, the headline figure was the highest in almost 18 months.

The boost was supported by broad-based hiring, led by healthcare, alongside gains in construction and transport. Manufacturing activity also staged a recovery, with the strongest hiring since the end of 2023.

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Early-week optimism proved fleeting. Hopes for a diplomatic off-ramp and a temporary reprieve in oil prices supported a modest bid on Monday, but conviction remained shallow. By midweek, now-familiar uncertainty intensified, energy prices firmed, and markets confronted the implications of a more persistent shock. Selling accelerated into the latter part of the week, leaving the S&P 500 at its lowest level since August and within striking distance of a technical correction. No one is willing to hold risk over the weekend.

Technology remains the epicenter of weakness. The sector is contending with a dual headwind: geopolitical risk and a growing reassessment of AI-driven valuations. Reports around Anthropic’s latest model and efficiency breakthroughs from Google have added to concerns that the competitive landscape is shifting faster than expected, weighing on semiconductors, cybersecurity, and broader software.

By contrast, the leadership is narrow. Energy continues to outperform as crude prices remain elevated, extending its run of relative strength and marking yet another record for the sector. Defensive areas such as consumer staples and utilities have also started to find a bid, reflecting a more traditional late-cycle posture as investors rotate toward balance sheet resilience and pricing power.

Positioning and sentiment are beginning to shift alongside price action. The early phase of the conflict was characterised by a willingness to fade the move, anchored in expectations of a quick resolution. That assumption is now being challenged. Sell-side desks are increasingly flagging the risk of complacency, with a growing recognition that elevated energy prices, if sustained, will have a more material impact on both growth and inflation than currently priced. The debate has moved from whether to buy the dip to whether the market is entering a more protracted adjustment phase.

Macro signals are reinforcing that shift. Inflation-sensitive data is beginning to pick up, with import prices surprising to the upside and providing an early indication of pass-through effects. Fed communication has remained firmly cautious, with the balance of risks tilting away from easing and, at the margin, reopening the possibility of further tightening should inflation pressures persist. Rate markets have responded accordingly, with expectations for cuts continuing to be pared back and tail-risk hedging around hikes starting to re-emerge.

Across assets, the US dollar has resumed its grind higher, supported by rising front-end yields and persistent geopolitical demand. The curve continued to flatten, with weak auction demand highlighting investor reluctance to add duration at current levels. Options markets are beginning to reflect a shift in regime as well, with positioning increasingly skewed toward protection against further policy tightening.

The key takeaway is that markets are trading a change in conditions. The combination of elevated energy prices, tighter financial conditions, and diminishing policy flexibility is creating a more fragile equilibrium for risk assets.

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Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Far More Reactive to Relief”

• “OECD Flags Risks to Inflation”

• “Safe Jobs, Hard Problem (NFP Preview)”

• “China’s Decoupling from Oil Risk”

Far More Reactive to Relief

After a bruising month that has pushed the Nasdaq into correction territory and dragged the S&P 500 close behind, the question is no longer whether the news flow is bad, but whether that bad news is already reflected in positioning.

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The S&P 500 opened with a bid, supported by tentative signs that traffic through the Strait of Hormuz could resume in some form. Crude drifted lower, with WTI briefly falling toward $94, and equities responded accordingly as dip buyers stepped back in. For a moment, the market was willing to treat the conflict as containable.

The optimism proved fragile by the midweek, with the narrative shifting decisively as attacks on energy infrastructure escalated. Iran confirmed damage to the South Pars gas field, while Qatar reported extensive disruption at a major LNG facility. Oil prices reversed sharply higher and, more importantly, the market was forced to reassess the persistence of the supply shock. At the same time, the policy backdrop turned more restrictive. Federal Reserve Chair Jerome Powell acknowledged that rate hikes had been discussed as a potential next step, with the ECB and BoE reinforcing that shift a day later. Rate-cut expectations are out of the picture, and equity outflows accelerated into the back half of the week.

By Friday, the S&P 500 had fallen to a six-month low, the Russell 2000 entered correction territory, and megacap tech traded meaningfully below recent highs. The idea that there was a “safe corner” of the equity market continued to break down, with correlations rising and diversification offering little protection.

Sector performance reflected the macro shift. Energy outperformed again as crude prices moved higher, while financials were the only other group to finish in positive territory, helped by the Fed’s proposal to ease capital requirements for large banks. In contrast, materials and consumer staples lagged as rising input costs and inflation expectations weighed on margins. The weakness in materials has been particularly notable, with the sector reversing sharply from one of the year’s strongest performers to one of the worst since the conflict began.

The broader message from positioning is changing. A market willing to fade geopolitical risk has now transitioned into one that is questioning the duration and economic impact of the shock. Sell-side desks are increasingly flagging complacency, with the risk that investors have underestimated how persistent elevated energy prices can be for both growth and inflation.

Citi’s Macro Risk Index consists of asset prices sensitive to risk (which includes credit spreads, Treasury bill-OIS spreads, basis swaps, asset swaps, VIX, etc.), and has been rising sharply, although it remains below its April 2025 high.

Policy is reinforcing that move. The Fed held rates unchanged, but the signal from the meeting was clearly hawkish. The bar for cuts has risen materially, with policymakers emphasising inflation risks and even entertaining the possibility of further tightening. Markets responded by aggressively repricing the front end, with Fed funds futures briefly pricing tightening scenarios and OIS stripping out much of the easing expected just weeks ago.

Across assets, the adjustment has been consistent. The US dollar ended the week softer but remains structurally supported, particularly as global central banks move in a similarly hawkish direction. In rates, the curve flattening intensified, with evidence of position unwinds and a broader recalibration of rate expectations. The inversion in longer-dated segments such as 20s30s highlights how much of the adjustment is now being driven by inflation risk rather than growth optimism.

Energy prices, policy constraints, and geopolitical uncertainty are feeding into each other, leaving equities in a position where rallies struggle to hold and downside moves build gradually. Until there is clarity on either the trajectory of the conflict or the path of inflation, the pattern of early optimism and late-week selling looks less like noise and more like the defining feature of this phase.

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Let’s get into the guide to trades moving markets, where things stand and where they may be heading. Following last week, the focus remains very much in the rates and FX space.

• “Gilts Get Renewed Headaches”

• “Sell the Liquid Winner”

• “The Underlying Dynamics Pushing USD/JPY Higher”

Gilts Get Renewed Headaches

UK Gilts experienced a sharp and disorderly repricing over the past week, with the 10-year surging through the 5% threshold for the first time since the global financial crisis, marking a decisive break from the disinflationary backdrop that had dominated pricing earlier in the year.

The adjustment has been particularly acute at the front end, where two-year yields have repriced aggressively higher as markets rapidly abandon expectations for rate cuts and instead begin to discount a renewed tightening cycle from the Bank of England. It has been nothing short of a very eye-opening move whereby the gilt market has transitioned in a matter of days from a “late-cycle easing” framework to one centred on renewed inflation risk. UK 1-year inflation swaps have moved sharply higher, rising by approximately 50bps to trade above 4%, while 5-year breakevens have also drifted upward.

The core of the move has been the sharp escalation in global energy prices following the Middle East conflict, which has reintroduced a classic cost-push inflation shock into an economy already exhibiting fragile growth dynamics. As we’ve noted since the conflict began, along with the EU, the UK does have a structural sensitivity to imported energy, which therefore feeds directly into inflation expectations. Yet the move in Gilts has been compounded by the BoE’s own communication, which, while holding rates steady, explicitly acknowledged upside risks to inflation and signalled that further tightening may be required if second-round effects materialise.

Having to wheel out Governor Bailey for media appearances on Thursday afternoon after the meeting goes some way to show how keen they were to try and calm the markets down (which didn’t do much good).

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