U.S. May CPI rose to 4.2% YoY from 3.8%, highlighting persistent inflation pressure amid elevated oil prices. Inflation has also turned higher in both the U.S. and Europe, while stronger-than-expected payrolls and upward revisions to prior months have reinforced concerns that the Fed could shift toward rate hikes in 2026, pushing U.S. 10Y Treasury yields above 4.5% and weighing on global bond markets.
Stronger-than-expected payrolls reinforced expectations of further Fed tightening, triggering profit-taking in semiconductor stocks after a strong rally. Meanwhile, May CPI matched expectations but rose further from April, underscoring persistent inflation pressure. Uncertainty surrounding U.S.-Iran negotiations also weighed on sentiment, as conflicting signals from both sides kept hopes for a peace deal in doubt and left U.S. equities unable to recover weekly losses.
Stronger U.S. inflation and employment data boosted expectations of Fed rate hikes and pushed Treasury yields higher. However, yields later retraced after President Trump suggested a U.S.-Iran agreement could be near. Despite higher sovereign yields, investment-grade bonds remained relatively stable, reflecting stronger confidence in corporate balance sheets than in increasingly indebted governments. High-yield bonds were also relatively resilient, supported by higher coupons and shorter duration. Overall, bond markets may remain volatile if government bond yields resume their upward trend.
Optical Networking Emerges as the Next AI Infrastructure Growth Driver
As AI models become more complex, AI servers increasingly rely on cross-rack collaboration. Beyond computing power, higher-bandwidth connectivity is required to support massive data transfers, with transmission standards gradually upgrading from 800G to 1.6T. Traditional copper interconnects face signal degradation and heat-dissipation challenges at higher speeds, making optical networking the preferred solution for low-latency, high-performance connectivity.
The Middle East ceasefire remains fragile, while U.S.-Iran peace talks have yet to reach a consensus. Restoring supply and rebuilding damaged infrastructure will take time. Although Saudi Arabia and the UAE can partially bypass the Strait of Hormuz through alternative pipelines, capacity remains limited, keeping oil prices elevated and volatile. Natural gas prices in Europe and Asia also remain well above U.S. levels. Given the region’s longstanding religious, ethnic, and geopolitical tensions, market concerns are unlikely to disappear even if the Strait of Hormuz fully reopens.
The U.S. has become a leading global producer of oil and natural gas following the shale revolution. Crude oil output exceeded 13.6mn bpd in 2025, while abundant supply and extensive pipeline infrastructure have kept U.S. natural gas prices well below those in Europe and Asia. High energy self-sufficiency and stable domestic supply give the U.S. a structural cost advantage, making it an attractive destination for corporate investment and supply-chain reallocation.
