Trifecta trigger: CPI fizzle, Saudi flows, and Trump truce ignite S&P rally

S&P snaps back as CPI fizzles

The 2025 equity tape just flipped bullish in real time, with the S&P 500 reclaiming its mojo and erasing its year-to-date losses-driven by a monster bid under the biggest names in tech. Nvidia, AMD, and the rest of the semiconductor heavyweights powered the charge as traders jumped on the back of a fast-repricing Buy America narrative, supercharged by a cooling of trade war rhetoric and better-than-feared CPI noise.

Call it what it is: a pain trade in full motion.

The S&P punched back toward its February highs-levels that had felt like a distant memory just a few weeks ago. Chipmakers led the breakout after news that Nvidia and AMD will be feeding silicon into Saudi firm Humain’s mega data center buildout. Add in speculation that the UAE could soon greenlight over a million Nvidia chips under a new U.S. export arrangement, and suddenly semis are no longer just a momentum trade-they’re policy proxies.

Treasuries gave up early gains as traders recalibrated the Fed’s stance. With CPI not flashing red and tariffs now rolling back, the market is rethinking how much urgency Powell really has. Rate cuts? Maybe later. Right now, it’s risk-on-and the dollar surprisingly backed off even as bond yields and US tech markers ticked higher.

Behind the scenes, the Trump administration is reshaping the AI export rulebook, reversing Biden-era constraints that had rattled allies. The new approach aims to thread the geopolitical needle-enabling U.S. chip exports to allies like the UAE while keeping strategic tech pressure on China. That pivot, combined with Saudi Arabia’s jaw-dropping $1 trillion investment commitment in U.S. projects, has reignited the U.S. exceptionalism bid many thought was doomed for the relic bin.

Even Trump himself joined the chorus, saying the market is “gonna go a lot higher,” pointing to an “explosion of investment and jobs.” Hyperbole or not, the tape agreed.

What’s clear is this: last month’s doubters are now this month’s chasers. A soft CPI, a thaw in tariffs, and earnings that didn’t fall apart have left investors underweight and underexposed. The squeeze is real-and it's being led by the same Magnificent Seven that took the market to all-time highs in the first place.

The market just caught another “Buy American” trade wind, and those on the sidelines are forced to sprint. The trade truce may be a pause, not peace-but for now, it's lit a fuse under the risk complex. And tech, once again, is driving the getaway car.

The view (epic risk squeeze)

The S&P 500 just clawed its way into positive territory for the year, powered by a perfect cocktail of softer-than-expected CPI, a blowout investment blitz from Saudi Arabia, and a turbocharged short-squeeze that left underexposed bears choking on basis points. The tariff-flation narrative? Crushed. The U.S. Macro Inflation Surprise Index just dropped to its lowest level since August 2020. Somewhere, the hyperventilating crisis crowd is frantically reloading macros.

The CPI print may be backward-looking, but markets are forward-priced-and right now, the momentum train is running on full throttle. Yes, tariff effects may creep into the next few prints, but starting from a lower base changes the dynamic. If U.S. corporations are quick enough to rework supply chains or dodge the worst of China-sourced tariff cost pressures, those effects might be as fleeting.

And just as traders were digesting the data, Trump touched down in Riyadh and unleashed a full-spectrum bullish barrage: AI megadeals, trillion-dollar Gulf investment pledges, a high-net-worth forum straight out of a James Bond film, and a press conference dripping with alpha-soaked one-liners. "The stock market’s gonna go a lot higher," he declared, flanked by MBS, Elon, Jensen, Schwarzman, and the rest of the gilded cabal. The MAG7 ripped. Nasdaq led. Risk bulls roared.

Nvidia surged 5.6%. AMD added 4%. Tesla ripped 5%-up 50% since Tim Walz took a swipe. MAG7 names are now up over 7% since Friday’s close-triple the return of the S&P 493. Most-shorted stocks just posted their biggest 4-day rally since December 2023, up nearly 10%. The pain trade isn’t just alive-it’s rolling stop-losses for sport.

Even tariff-exposed retail names-left for dead after "Liberation Day"-have surged back above their pre-chaos highs.

Meanwhile, the Dow lagged, dragged down by UNH’s implosion after a trifecta of bad news: CEO exit, earnings miss, and suspended 2025 guidance. It’s now down 50% since April.

On the rates front, yields are rising again-led by the long end. The entire curve is up 10–12 bps this week, with 2s back above 4%. That's not exactly risk-market-friendly on paper, but the cut pricing is already backing off. The market now sees just two cuts in 2025, with a growing chorus (myself included) thinking we only get one token cut-maybe in December as a holiday stocking stuffer.

Fed cuts have transitioned from “emergency insurance” to “gradual normalization.” Growth looks firm enough, labor markets are cooling just enough, and the urgency is gone. The White House, unsurprisingly, doesn’t agree. Trump dropped the hammer online, demanding Powell “lower the RATE” because inflation is “DOWN!!!” and America is “ready to blossom.” Classic.

Elsewhere, the dollar gave back yesterday’s gains as the risk-on squeeze sucked the air out of defensive USD flows. Bitcoin bounced hard from $101,000 to $105,000. Ethereum cracked back above $2,700, staging its strongest session since February. Oil rallied too-WTI flirted with $64.

So, what’s changed? Everything and nothing.

Trade policy uncertainty has cratered-now back to where it was before Liberation Day detonated positioning. And let's be honest, the market knows this script by heart:

Trump escalates. Markets tumble. Back-channels open. China blinks. A deal gets made. Risk rallies.

Wash, rinse, and squeeze the shorts-same script.

The fog has lifted-for now. Whether this cycle brings more sustainable upside or just sets up the next tantrum remains to be seen. But today, the market voted with both hands: risk is back, and the short base just got torched.

The takeaway? You don’t have to love the policy-you just have to trade the tape.

Trump’s $1 trillion Gulf tour ignites U.S. tech and defense stocks as AI megadeals roll in

Wall Street just got a fresh injection of Gulf oil-and it didn’t come from barrels, but billions.

Donald Trump kicked off his three-nation Gulf tour with a thunderclap: a White House announcement touting $600 billion in U.S.-Saudi agreements spanning defense, artificial intelligence, and energy. Hours later, Saudi Crown Prince Mohammed bin Salman upped the ante, pledging to bring that total closer to $1 trillion. If that wasn’t bullish enough, the Magnificent Seven are back in the driver's seat, with Nvidia leading the charge and tech stocks breaking out across the board.

This isn’t just another photo op-it’s a multi-asset market catalyst.

The most eye-catching headline? Saudi AI firm Humain, freshly launched and chaired by MBS himself, committing to deploy “hundreds of thousands” of Nvidia’s latest Blackwell chips. That’s not a rounding error-this is potentially one of the largest AI infrastructure orders in history. First phase? 18,000 Blackwell servers. With GPUs priced at $30,000 to $40,000 apiece, you're looking at billions flowing directly into Nvidia’s top line. Shares responded in kind-up 5.6%, with AMD gaining 4% as it locked in a co-investment of up to $10 billion for its own AI buildout in the kingdom.

Amazon followed suit, pledging $5 billion into Saudi data center infrastructure. And the UAE isn’t standing still-it’s reportedly negotiating to import over a million Nvidia chips, signaling that the race to become the “AI capital of the East” is officially on.

But this is more than just chips. Trump’s Gulf stop delivered a buffet of high-dollar commitments:

• $142 billion in U.S. defense deals
• $20 billion from Saudi Arabia’s DataVolt into U.S.-based AI and energy infrastructure
• A complete overhaul of Biden-era chip export restrictions, re-opening high-end AI chip flow to trusted Gulf partners

And the market’s reaction? Predictably bullish. The S&P 500 surged back toward February highs. Tech is on fire, AI is front and center, and investors who missed the last rally are now being forced to chase. This is textbook pain trade fuel-and with real yields firm but not suffocating, the backdrop allows for more upside.

Trump himself summed it up in characteristically punchy terms: the stock market is “gonna go a lot higher,” citing an “explosion of investment and jobs” tied to Saudi and UAE inflows. Say what you want about the man-but this time, the ticker tape seems to agree.

Washington’s pivot on AI exports, Saudi’s outsized capital commitment, and the revival of a U.S.-Gulf strategic axis is more than geopolitics-it’s a rally engine. Tech is back in charge, the dollar has softened on risk appetite, and the U.S. exceptionalism trade just got a second wind. Watch the AI names, the defense complex, and the sovereign-backed bid. This is no longer about tariffs or tantrums-this is the money moving.

Inflation fears cool as tariff threat fades and shelter signals soften

April’s U.S. CPI print delivered a welcome downside surprise, reinforcing the market’s growing view that the Fed still has room to ease later this year-despite the noise around tariffs. Headline and core CPI both rose just 0.2% MoM, softer than the 0.3% expected, bringing headline inflation down to 2.3% YoY, the lowest since February 2021, while core inflation held at 2.8%. The message: inflation is cooling, and not just because of a headline miss-there are cracks forming in the underlying data structure too.

Shelter, which accounts for more than a third of the inflation basket, remains sticky at +0.3% MoM / 4.0% YoY, but there’s growing evidence this category will ease in the back half of the year. Lead indicators like the Cleveland Fed’s new-tenant rent index are softening, pointing to disinflation ahead in one of the most persistent components of core CPI. It’s a slow unwind, but it’s in motion.

The composition of April's print shows widespread cooling:

• Airline fares: -2.8% MoM / -7.9% YoY (third straight monthly drop)
• Used cars: -0.5% MoM
• Apparel: -0.2% MoM
• Food: -0.1% MoM

These declines more than offset rises in healthcare services and commodities, vehicle insurance, and maintenance costs. But the real story is this: services inflation is no longer running unchecked, and that gives the Fed cover.

Even better for markets? The tariff overhang is receding. With the U.S.–China trade war cooling, and tariffs now materially lower than their peak, the worst-case scenario for goods inflation is being dialed back. And importantly, commodities ex-food and energy-which are most sensitive to tariffs-make up just 19.4% of the CPI basket. The Fed will take comfort knowing that even if some price pressure re-emerges from tariffs, it’s unlikely to overwhelm the disinflation coming from housing and services.

This dovetails with today’s NFIB small business survey, which showed a cooling in price-setting behaviour:

• Firms currently raising prices dropped from 31% in Feb to 25%
• Those planning to raise prices fell to 28% from 30%

In short, there’s a clear trend of easing price pressure in the service economy-exactly what the Fed wants to see.

Market implications:

• Most in the market still expect the first Fed cut in September, with a 25bps move now more likely than 50bps.
• Bond yields held steady on the news, while equities rallied and the dollar slipped. As we suggested yesterday the bar was high for CPI to move the needle.
• The macro message: inflation is losing steam, tariff risk is priced out, and the Fed has breathing room.

With softening shelter signals and a defanged tariff threat, the CPI print helps keep the path open for policy easing. The Fed doesn’t need to rush, but it no longer needs to worry that inflation is racing away. In theory, that’s bullish for duration, constructive for risk, but so far, only risk has reacted as bond desks are looking through the soft print, expecting higher inflation down the road, hence the inflation premium still haunting the yield curve.