AI super bull market faces pressure test again! US inflation returns to the "4" era + Middle East warfare escalation, the "anchor of global asset pricing" stirs waves again.

Even though the US core CPI inflation data came in weaker than expected, which to a large extent eased the pressure on the new Federal Reserve Chairman Kevin Wash to take early tightening monetary policy actions, the escalating situation in the Middle East and the continuous rise in overall CPI have led bond traders to maintain a hawkish stance, believing that the Fed will return to rate hikes before the end of the year. In addition, as the US military begins new strikes on multiple targets within Iran and Iran announces the closure of the Strait of Hormuz to all types of vessels, including oil tankers and merchant ships, with immediate effect, stating that any ship attempting to pass through the strait will be attacked, this series of dynamic events will undoubtedly further drive US inflation expectations and the yield of the 10-year US Treasury bond, known as the "anchor of global asset pricing", upwards. Although US Treasury yields initially fell after the release of US CPI data on Wednesday, they later rebounded as oil prices rose and news of continued actual closure of the Strait of Hormuz by Iran surfaced. Pricing data from the interest rate swap market shows that traders are still fully pricing in a 100% chance that the Fed will return to rate hikes in December, aligning with the hawkish bets of bond market traders. The CME FedWatch tool also shows that traders unanimously expect the Fed to resume rate hikes in December, with some also betting on the Fed starting the rate hike process in October. The May CPI data report reinforced the logic of the Fed maintaining higher rates for longer, but it is not enough to trigger an immediate rate hike. It is highly likely that the Fed will maintain benchmark rates unchanged in the coming months. However, if overall and core CPI data continue to rise, combined with the ongoing deterioration of the geopolitical situation in the Middle East, it will continue to push up US inflation expectations and the yield of the 10-year Treasury bond, causing a significant cooling of the global bull market dominated by AI computing power frenzy. After Trump escalated threats against Iran, WTI crude oil futures prices rose over 4% during Wednesday's US trading session, closing above the key $90 level, while Brent August crude oil futures prices rose nearly 2% towards $95. Therefore, with the strong nonfarm payroll report and continued rise in overall CPI, coupled with the escalation of the US-Iran conflict leading to another spike in oil prices and the continued closure of the Strait of Hormuz, it is difficult to avoid a continued upward trend in the yield of the 10-year Treasury bond in the short term. On May 19, the 10-year Treasury yield briefly surged to 4.7%, the highest level since January 2025, which briefly shook the global stock market, dominated by the AI computing power frenzy and strong market momentum. The 10-year US Treasury bond, as the risk-free rate anchor in the DCF stock valuation model, once it remains elevated, will face pressure for a temporary downward correction, potentially leading to a shift from an "valuation expansion bull market" to a "profit verification bull market." A significant upward trend in the 10-year Treasury yield tends to significantly compress the valuation systems of high-duration assets such as high-PE semiconductors, AI software, unprofitable AI infrastructure, electric fuel cells, quantum computing, and space technology. However, for AI hardware assets leaders that already have order lock-ins, pricing power, buyback ability, and cash flow, the impact may be more of temporary volatility rather than an industry logic collapse. Moreover, if Wash's "road to change" involves reversing dot plots and forward guidance, it will undoubtedly increase market speculation on the Fed's rate hike expectations and possibly significantly raise term premium, further strengthening the upward movement of the 10-year Treasury bond yield. Soft core inflation meets increasingly hard-hitting oil price shocks! Traders continue to bet on the Fed's return to rate hikes this year Excluding food and energy prices, the core Consumer Price Index (core CPI) rose 0.2% in May, lower than the 0.3% consensus forecast by economists surveyed by Bloomberg. However ... (Continued in next comment)