A Reuters Open Interest newsletter

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

Investors shrugged off a sharp rise in U.S. producer inflation and spike in bond yields on Wednesday to push the S&P 500 and Nasdaq to new highs, as they awaited the U.S.-China summit in Beijing between Presidents Donald Trump and Xi Jinping.

In my column today, I look at how Trump's hand going into the summit is weaker than it was the last time the two leaders met in October last year, thanks to the Iran war and wave of inflation it has unleashed. 

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

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* PPIping hot

U.S. producer price inflation surged in April, notching the biggest monthly and annual gains since 2022, and rising much faster than analysts expected. If PPI is a precursor of CPI, the signs are ominous - consumer inflation will soon be smashing through the 4% barrier.

The difference between annual PPI and CPI inflation rates in April jumped to 2.2 percentage points, the widest gap since 2022. The gap between the monthly measures was 0.8 percentage point, matching the highest since 2010. Buckle up.

* Reaching the summit

The countdown to the Xi-Trump summit in Beijing is almost over. The two leaders are expected to discuss Iran, Taiwan, trade, energy and tech security, with expectations of major breakthroughs on any of these issues being set pretty low.

Trump's entourage includes more than a dozen leading figures from the business world, including Elon Musk, Apple CEO Tim Cook and, at the last minute, Nvidia CEO Jensen Huang. Could this be a sign of a potential agreement on Nvidia selling its powerful H200 AI chips to customers in China? 

* Confirmation

Kevin Warsh is Chair of the Federal Reserve. He replaces Jerome Powell, whose term ends on Friday but who will remain a Fed governor. Fed Governor Stephen Miran, currently the central bank's biggest advocate of rate cuts, will vacate his spot on the board to make room for Warsh.  

He has a job on his hands convincing his colleagues that rates should be cut. Headline consumer and producer inflation is the highest in years and rising, and some of the 'trimmed mean' measures - favored by Warsh - are moving higher too.  

U.S. President Donald Trump went into his summit with Chinese President Xi Jinping last October in a position of relative strength. The "Liberation Day" tariff turmoil had passed without causing any obvious damage to the economy, Wall Street was on a roll, a record-long government shutdown was about to be in the rear-view mirror, and the Fed was ‌cutting interest rates.

The backdrop today is very different.

Trump is heading into this week's summit with Xi in Beijing with a weaker hand. Granted, sizzling artificial intelligence investment has uncorked a frenzy that has propelled equity markets to new highs. But other metrics are flashing amber, if not red.