Equities Defy Inflation Fears as Risk Appetite Remains Elevated

Market Overview

U.S. equities extended their rally despite mounting inflationary signals, underscoring the markets strong risk-on sentiment.

The April ISM Services NMI report revealed that the prices index surged to 70.7, indicating intensifying upstream cost pressures across the supply chain. This data clearly points to persistent inflationary challenges within the services sector, particularly in procurement and operational expenses. However, these cost headwinds failed to dampen investor enthusiasm.

Driven by aggressive momentum chasing, the three major U.S. indices demonstrated remarkable resilience. The S&P 500 advanced steadily throughout the session, closing up 0.81% and setting a new all-time high. Meanwhile, the Nasdaq Composite climbed 1.03%, supported by strong gains in technology stocks, also marking a fresh record high.

The semiconductor sector remained the focal point of market attention. The Philadelphia Semiconductor Index surged more than 4%, extending its strong uptrend amid heavy capital inflows. Individual names posted outsized gains, with Intel soaring 13%, SanDisk rising 12%, and Micron Technology gaining 11%.

Beyond intraday momentum, earnings season provided additional support. Advanced Micro Devices delivered better-than-expected results, triggering strong after-hours buying and driving its share price up 14% in extended trading.

Overall, the market narrative has shifted from concerns over cost-driven inflation to a focus on growth opportunities in AI hardware and semiconductors. Capital is increasingly concentrated in leading chipmakers, suggesting that bullish momentum remains firmly intact.

Key Themes AheadRising Price Pressures: Will the Fed Stay on Hold？

The April ISM Services NMI declined from 54.0 to 53.6, slightly below expectations of 53.7. Meanwhile, the final S&P Global Services PMI was revised down to 51.0 from the preliminary 51.3 reading, with the employment sub-index contracting for a second consecutive month.

Input cost indices remain elevated near cycle highs, reinforcing the narrative of persistent inflation. The combination of slowing growth and sticky inflation has intensified stagflation concerns, placing the Federal Reserve in a policy dilemma and reducing the likelihood of near-term rate cuts.

BOJ FX Intervention: Limited Effectiveness？

During Japans Golden Week, authorities intervened in the FX market for three consecutive days, with total spending estimated to exceed $54 billion. Notably, officials characterized the three actions as “a single intervention,” preserving room for future operations under IMF guidelines, which allow up to three interventions within six months to maintain a “free-floating” classification.

According to Nomura Securities, unless policymakers shift direction and the Bank of Japan signals a path toward rate hikes, the effectiveness of these interventions may prove short-lived. The risk of renewed “sell Japan” trades is expected to rise significantly before June.

Key Data to Watch (gmt+8)

20:15 ET – U.S. April ADP Employment Change (thousands)