The Fed’s rate-cut window just closed

The US consumer price index (CPI) (pdf) across the all items index climbed 3.8%, up from 3.3% in March, with the core CPI for the “all items less food and energy” index rising 2.8% over the last 12 months, up from 2.6% in March.

The energy index accounts for only 40% of the monthly all-items increase — meaning the other 60% is now shelter, services, food, and tariff-sensitive categories. Energy surged 17.9% over the 12-month period. Shelter costs and tariff-sensitive apparel rose 0.6%, while airline fares accelerated 2.8% on the month, putting the 12-month gain at 20.7%. Food at home prices increased 0.7%, the biggest monthly gain since August 2022.

This rate increase has weighed on US consumer sentiment in recent weeks, as Americans grapple with an energy price shock that’s rippling through the economy. Real wages dipped 0.5% on the month, marking the first time in three years that US wages have not outpaced inflation. “For consumers, that means the cost of living remains uncomfortable,” economist Sung Won Sohn told CNN Business.

The Fed's rate-cut window just closed: The latest inflation reading sits at a longstanding crossroads for the Fed, following a four-dissent meeting held in late-April, the highest level of internal dissent since 1992. While incoming Chair Kevin Warsh has historically advocated for lower rates, and Governor Stephen Miran remains the lone voice favoring aggressive cuts, major investment banks have now begun pushing first-cut forecasts into 2027, with markets pricing a 30% chance of a hike by year-end.

Chief Investment Officer at Northlight Asset Management Chris Zaccarelli warned that with the labor market holding up, it’s very unlikely the Fed will be able to lower interest rates any time soon, and “we may start pricing in rate hikes for next year,” CNBC reports.

The geographic scope of the April inflation report hit Egypt particularly hard, with credit spreads widening as regional risk aversion triggered capital outflows and heightened concern over short-term funding needs. As we have previously tracked, Egypt’s 5Y credit default swap widened by 110 bps from pre-war levels to hit its March peak of 344.7 bps.

In the GCC, the USD peg means monetary policy is inherited from the Fed. While Aramco and Adnoc benefit from war-driven oil windfalls, the non-oil sector inherits a restrictive, high-rate environment from the Fed, constraining the non-oil credit cycle just as Vision 2030 and UAE industrial diversification deploy heavy capex.

The K-shape runs inside the GCC too — and the Public Investment Fund cutting international allocations from 30% to 20% is the tell that the windfall is being routed home, not deployed outward as it was in 2024-25.

While Aramco’s CEO Amin Nasser recently warned that supply disruptions could persist until a 2027 normalization — estimating a loss of 100 mn barrels for each additional week the strait remains closed — the CPI reading suggests a more permanent shift. As we reported yesterday, producers view 2027 as a tactical recovery, but the inflation passthrough has already locked in higher costs. For regional importers, what began as a temporary war shock is now the structural reality for 2027 budgets.

MARKETS THIS MORNING-

Asian markets are up in early trading this morning, led by South Korea’s Kospi and Japan’s Nikkei. Asian stocks are mirroring gains seen across US tech equities over the past few days, which pushed major US indices to end yesterday in the green.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.2% yesterday on turnover of SAR 5.6 bn. The index is up 5.1% YTD.

In the green: Sustained Infrastructure Holding (+8.7%), Alinma Retail REIT Fund (+4.7%), and Petro Rabigh (+4.6%).

In the red: Wafrah for Industry and Development (-6.8%), Saleh Abdulaziz Al Rashed (-4.7%), and Saudia Dairy and Foodstuff (-3.5%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.1% yesterday on turnover of SAR 15.3 mn. The index is down 2.3% YTD.

In the green: Riyadh Steel (+9.5%), Ratio Speciality Company (+7.4%), and Al-Razi Medical (+6.5%).

In the red: Taqat Mineral (-10.9%), Alqemam for Computer Systems (-9.9%), and Lana Medical (-9.7%).