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THE MARKETSQ1 earnings have \u201cblown past expectations\u201d<\/p>\n
S&P 500 futures were down 0.36% this morning. The index rose 0.19% yesterday to a new record high of 7,412.84.\u00a0
\nIn Europe, the Stoxx 600 was down 0.77% in early trading and the U.K.\u2019s FTSE 100 was down 0.54% before lunch.
\nAsia: South Korea\u2019s KOSPI lost 2.29%. Japan\u2019s Nikkei 225 was up 0.52%. India\u2019s Nifty 50 declined 1.92%. China\u2019s CSI 300 was flat.\u00a0
\nBrent crude was $107 a barrel this morning, up from a low of $102 yesterday.
\nBitcoin was $80.9K.<\/p>\n
Why does the S&P 500 keep hitting new highs even though the world is at war and oil is above $100 per barrel? To misquote former U.K. Prime Minister Harold Macmillan, \u201cResults, dear boy, results.\u201d The index has delivered a blockbuster set of Q1 earnings. With 86% of companies reporting, \u201c64% of companies beat both EPS and sales expectations, nearly 20 percentage points ahead of the historical average of 42% since 2001,\u201d according to Savita Subramanian of Bank of America. The \u201c1Q26 earnings season has blown past expectations,\u201d she said in a note.<\/p>\n
It was the sixth straight quarter in which the index had delivered EPS gains of 5% or more, according to Ohsung Kwon and his colleagues at Wells Fargo.<\/p>\n
ONE BIG THINGU.K.\u2019s Starmer clings on despite rebellion aimed at forcing him out<\/p>\n
In a fast-moving situation that is changing by the minute, U.K. Prime Minister Keir Starmer this morning said he would face down a rebellion from his own members of parliament and stay on in No.10 Downing Street. More than 70 of his Labour Party MPs have demanded he leave office, after their party lost nearly 1,500 seats in local elections last week. However, the party\u2019s rules require 20% of the parliamentary party\u201481 MPs\u2014to demand his resignation before a leadership election can be forced.<\/p>\n
\u201cThe Labour Party has a process for challenging a leader and that has not been triggered,\u201d Starmer said this morning. \u201cThe country expects us to get on with governing. That is what I am doing and what we must do as a cabinet.\u201d<\/p>\n
The number of MPs moving against Starmer has been changing by the minute and it is possible that Starmer may be forced out as soon as today. Alternatively, he may stay on in a grueling civil war within his own party.<\/p>\n
Investors sold U.K. government bonds. The yield on the 30-year \u201cgilt\u201d bond spiked up to over 5.8% on Tuesday, from 5.54% on May 8\u2014a relatively sharp rise in the risk premium. The yield is now the highest it has been for more than 10 years. The pound fell against the dollar, too.<\/p>\n<\/p>\n
THE ECONOMYThe Fed is \u201cmeaningfully deviating from the most standard policy rule,\u201d Bank of America warns<\/p>\n
We will get a new readout of U.S. consumer price inflation at 8:30 a.m. New York time today and analysts are guessing the number will be something like 3.7%, up from 3.3% the month before. Crucially, that would place inflation above the Fed\u2019s current base interest rate, 3.5%.<\/p>\n
On that basis, Wall Street is waking up to the fact that it is looking less likely that President Trump will get the interest rate cuts he wants from the Fed.\u00a0<\/p>\n
Jerome Powell\u2019s last day as chairman is on Friday, and he will give way to Kevin Warsh. While Warsh hasn\u2019t literally promised a rate cut to Trump, he kinda-sorta didn\u2019t not promise one either. Warsh\u2019s problem is that the data just isn\u2019t shaping up in a way that warrants a cut. Quite the opposite.<\/p>\n
Yesterday, the Fed Funds Futures market was pricing a \u201chold\u201d as a 95.8% probability. If the CPI number comes in hot, expect that to change quickly toward a hike.<\/p>\n
Some Wall Street analysts are arguing that a hike is increasingly likely, given that unemployment is modest. Mark Cabana and his team at Bank of America note that the Fed is in danger of ignoring an Economics 101 guideline for fighting inflation: The Taylor rule. This rule states that when inflation is higher than the target rate (which is 2%), the Fed interest rate should be higher still, and moving upward faster than inflation.<\/p>\n
But right now, the Fed is behind where Taylor says it needs to be. The \u201cFed is choosing to look through tariff and commodity inflation, expecting both will roll off by late ’26. Even if they do fall, standard Taylor still implies a [Fed funds] target of 4.0% at the end of ’26. Fed is meaningfully deviating from the most standard policy rule,\u201d Cabana says.<\/p>\n
At Morgan Stanley, Lisa Shalett\u2019s team observes that the S&P and future rate-cut expectations tend to be correlated. The higher stocks go, the more cuts the markets expect the Fed to deliver. But that relationship has recently broken down. \u201cWe are not convinced that this disconnect can persist for long,\u201d they said in a note to clients.<\/p>\n<\/p>\n
And even if Warsh doesn\u2019t hike, he won\u2019t cut either, per Goldman Sachs\u2019 David Mericle. Mericle thinks the Fed will stay on hold until the war is over: \u201cWe are pushing back the final two 25bp Fed rate cuts in our forecast by one quarter to December 2026 and March 2027,\u201d he said in a note yesterday.<\/p>\n
THE WARIran vows economic pain for the U.S. as Trump considers new missile strikes<\/p>\n
President Trump is considering a return to more military action against Iran after he rejected Tehran\u2019s most recent proposal to end the war as \u201cgarbage.\u201d Two U.S. officials told Axios that Trump was leaning toward more bombing, rather than forcing open the Strait of Hormuz. “He will tune them up a bit,” one anonymous source said. “I think we all know where this is going,” the other told Axios.<\/p>\n
Iran\u2019s parliamentary speaker, Mohammad Bagher Ghalibaf, promised on X to cause economic pain for American taxpayers if Iran\u2019s rights aren\u2019t respected. \u201cThere is no alternative but to accept the rights of the Iranian people as laid out in the 14-point proposal. Any other approach will be completely inconclusive; nothing but one failure after another. The longer they drag their feet, the more American taxpayers will pay for it,\u201d he said.<\/p>\n
The two sides are stuck in a stalemate, according to the Wall Street Journal. Iran is increasingly confident that it can both withstand further bombing and keep the Strait of Hormuz closed. The U.S. is successfully enforcing its side of the blockade, but only a handful of ships have left the Gulf since \u201cProject Freedom\u201d began.<\/p>\n
MORE FROM FORTUNE<\/p>\n
Exclusive: White Circle raises $11 million to stop AI models from going rogue in the workplace – Beatrice Nolan<\/p>\n
U.S. hotels are calling the World Cup a \u2018non-event\u2019 and 80% warn bookings are falling short of expectations, report finds – Sasha Rogelberg<\/p>\n
Jensen Huang\u2019s message to electricians and plumbers: \u2018This is your time,\u2019 as AI buildout leads to soaring demand for skilled trades – Tristan Bove<\/p>\n
Trump Mobile quietly rewrote its fine print to say the gold Trump phone may never be made, a year after taking $100 deposits – Marco Quiroz-Gutierrez<\/p>\n
Wall Street thinks memory is AI\u2019s golden ticket. Harvard\u2019s chip expert warns: \u2018Curves that just go to the sky with no end\u2026never continue forever\u2019 – Eva Roytburg<\/p>\n
Forget U.S. debt, China\u2019s total borrowing is in \u2018a league of its own\u2019\u2014much worse and deteriorating faster, analyst says – Jason Ma<\/p>\n
CHART OF THE DAYThe 20-year housing hangover behind Starmer’s woes<\/p>\n
Why are the British so unhappy with Keir Starmer\u2019s government? This chart from Deutsche Bank posits a theory: In the post-Great Financial Crisis period, a huge amount of British wealth was gained via real estate. \u201cFor years, if not decades, house price growth significantly outstripped inflation, creating wealth, confidence, and high consumer spending,\u201d Jim Reid at Deutsche Bank said in a note. But \u201creal house prices are now generally back to levels seen before the GFC, a 20-year period of going nowhere. If an economy that prospered with ever higher property prices suddenly hits a brick wall, it\u2019s likely to have economic and political implications.\u201d<\/p>\n
NUMBER OF THE DAY118,000<\/p>\n
The number of tech jobs eliminated globally in 2026 so far, according to data compiled by TradingPlatforms. \u201cIf the pace continues, total layoffs in the technology sector could exceed 340,000 by December\u2014significantly more than in 2025,\u201d the company says. As Fortune has noted previously, it does look as if AI is eating jobs in tech.<\/p>\n
THE FRONT PAGES TODAY<\/p>\n
Trump invites Elon Musk, Tim Cook, Larry Fink and other CEOs to join China trip for Xi summit – CNBC<\/p>\n
Trump and Rubio’s escalating rhetoric show a Cuba invasion could be imminent – Axios<\/p>\n
JPMorgan and the delicate art of paying off employees – WSJ<\/p>\n
China earns $500 million an hour from exports supercharged by AI – Bloomberg<\/p>\n
China increasingly views Trump\u2019s America as an empire in decline – NYT<\/p>\n
Soccer fans warned of 36% spike in ticket fraud ahead of World Cup 2026: \u2018Incredibly convincing\u2019 – NY Post<\/p>\n
ONE MORE THINGYour office ping-pong competition is nothing compared to this<\/p>\n
Last month, nearly 300 Montage International employees packed into the ballroom of the company\u2019s Deer Valley, Utah, hotel, dressed in their Wimbledon-inspired best. After grabbing strawberries and cream, they filed into stadium seats, eyes fixed on a ping-pong table where former Olympians served as referees for the company\u2019s biennial Compass Cup tournament. Many of the luxury hotel company\u2019s 7,000 employees had played their way through local brackets before the top players were flown to Deer Valley for the finals, Fortune\u2019s Kristin Stoller reports.<\/p>\n
Why is the company going to such lengths for what is, basically, a fancy internal table tennis tournament? Jason Herthel, Montage International\u2019s president and COO, said it bonds employees to the company: Hospitality turnover can hover around 70%; at Montage, it\u2019s closer to 25%, he said.<\/p>\n
#Fed #meaningfully #deviating #Taylor #rule #tool #fighting #inflation #BofA #warns<\/p>\n","protected":false},"excerpt":{"rendered":"
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