US stock futures experienced a significant downturn on Friday, retreating from recent record highs as inflation concerns intensified and markets processed the results of the high-profile Trump-Xi summit in China. Contracts for the Nasdaq 100 fell by 1.2%, while those for the S&P 500 tumbled 0.9%, following sharp increases to all-time closing highs the previous day. The Dow Jones Industrial Average futures also decreased, moving about 0.6% lower.
Early Friday, President Trump concluded his visit with Chinese leader Xi Jinping in Beijing before returning to Washington. The meeting was characterized by a business-friendly atmosphere, with 16 leading US executives in attendance and notable agreements concerning companies such as Boeing and Nvidia being reached. However, underlying tensions related to Taiwan and Iran persisted, overshadowing the discussions.
There were hopes that China could leverage its influence over Iran, potentially aiding the US in resolving its ongoing conflict with the nation. Nevertheless, the lack of diplomatic progress has heightened anxiety about rising inflation, as evidenced by recent US economic data. The benchmark 10-year Treasury yields surged above 4.5%, indicative of a broader global bond market rout.
On the corporate front, Figma’s shares surged after a favorable earnings report released late Thursday, signaling robust demand amid the growing AI sector. Other companies, including Mizuho Financial Group, RBC Bearings, and Sigma Lithium Corporation, were also scheduled to report their earnings on Friday.
In global markets, a widespread sell-off in bonds intensified as fears of escalating inflation, exacerbated by the Iran conflict, took hold. This prompted investors to anticipate that interest rates could increase more rapidly than previously expected, potentially hampering economic growth. U.S. Treasury yields rose to their highest levels in approximately a year, with traders speculating that the Federal Reserve might need to act decisively to control inflation resulting from energy price shocks related to the conflict. Bonds from Germany, Italy, and France also faced downward pressure during early European trading, while Japanese bond yields reached historical highs.
Asian stock markets reflected similar sentiment, with investor enthusiasm over technology shares dissipating as inflationary concerns took precedence. The MSCI index tracking Asia-Pacific shares outside Japan fell 2.3%, poised for a weekly loss of 1.8%. Japan’s Nikkei index dropped by 1.8%, amid data showing wholesale inflation surged to 4.9% in April—marking the fastest rise in three years, which could influence the Bank of Japan’s monetary policy. Meanwhile, South Korea’s KOSPI index initially crossed the 8,000-point mark before plummeting over 5%. Chinese blue-chip shares decreased by 0.6%, and Hong Kong’s Hang Seng index saw a decline of 1.4%.
Oil prices continued on an upward trajectory for the week, buoyed by ongoing disruptions in the vital Strait of Hormuz. Brent crude rose towards $107 a barrel, supported by futures that increased by approximately 5% this week. Meanwhile, West Texas Intermediate was hovering near $102. A U.S. naval blockade remains in effect at Iranian ports, and navigation in the region continues to be perilous. Reports indicated unauthorized personnel had seized a commercial vessel and taken it into Iranian waters.
In their discussions, Trump and Xi addressed the necessity of maintaining open shipping routes in Hormuz for energy trade, along with enhancing American oil exports to China. Despite these conversations, China’s official statement did not specifically mention energy discussions, although it noted that the situation in the Middle East was part of the agenda.
The ongoing conflict has severely depleted global oil inventories at an unprecedented rate, leaving the market expected to remain “severely undersupplied” until October, even in the event that hostilities are resolved soon. US economic data released earlier this week underscored the inflationary pressures stemming from the conflict, adding extra domestic challenges for Trump in the lead-up to the midterm elections in November.
