Investor focus on the upcoming U.S. inflation data for May is weighing on tech stocks, with U.S. markets poised for a second consecutive day of losses and European equities also under slight pressure on Wednesday, while gold has plunged nearly $100.

As of the latest update, Dow Jones futures are down 1.01%, S&P 500 futures have fallen 1.14%, and Nasdaq futures have dropped 1.69%.

The Europe Stoxx 600 index has declined 0.3%, with technology and energy sectors performing the worst as investors shift towards more economically sensitive stocks.

In the Asia-Pacific region, the MSCI Asia ex-Japan index fell 2.3%, with South Korea's tech-heavy KOSPI index dropping 4.5% due to pressure on AI shares.

U.S. stocks declined in the previous session, with a weak rebound in tech shares. Concerns over high AI valuations, Middle East tensions, and rising bets on interest rate hikes have dampened market risk appetite. The CBOE Volatility Index, known as the "Wall Street fear gauge," briefly hit its highest intraday level since April 7.

Oil prices are slightly lower, with Brent crude dipping below $91 per barrel as investors watch whether U.S.-Iran peace talks can restore oil flows through the Strait of Hormuz.

Iran's Revolutionary Guard has stated it launched missile and drone attacks on U.S. military bases in Jordan, Kuwait, and Bahrain in retaliation for U.S. strikes on Iranian targets near the Strait of Hormuz.

This round of conflict marks one of the largest escalations since the two nations agreed to a ceasefire in April.

Discussing the Iran situation, Fleura Shiyanova, a fundamental analyst at Kepler Unigestion in Switzerland, noted, "This is an ongoing risk, albeit with a reduced impact compared to before. The market has a better understanding of these risks than at the start, but the question now is how long it will last."

Shiyanova added that investors are also adjusting positions ahead of the U.S. inflation data and other major events like the potential SpaceX IPO.

Analysts at MUFG stated, "The latest escalation could lead to a prolonged restriction of traffic through the Strait of Hormuz. The Strait is a key chokepoint for global oil and gas exports; meanwhile, falling U.S. crude inventories highlight tightening supply."

They noted that future progress in U.S.-Iran talks, the security situation around the Strait of Hormuz, and the pace of inventory drawdowns will be key factors influencing oil market sentiment. Traders are currently awaiting the latest U.S. crude inventory data due later on Wednesday.

Europe's relative lack of a significant tech hardware sector means it plays a secondary role in the AI-driven rally that has propelled U.S. and Asian markets, but this also provides some insulation during major tech sell-offs.

The primary market focus for the day is the U.S. Consumer Price Index (CPI) data for May, which will offer the clearest signal yet on whether the Federal Reserve, led by Kevin Warsh, will maintain higher interest rates.

Jim Reid of Deutsche Bank pointed out, "The market is not only swinging on U.S.-Iran talks but is also experiencing volatility akin to the 1999 AI boom and the 2000 tech bust. A significant CPI move today would continue this pattern."

A Bloomberg survey shows economists expect the annual U.S. headline inflation rate for May to rise to 4.2%, the highest since April 2023, up from a prior reading of 3.8%. Core inflation, which excludes food and energy, is forecast to edge up to 2.9% from 2.8%.

Charu Chanana, Chief Investment Strategist at Saxo in Singapore, said, "If CPI comes in hot today, it will be harder for the Fed to appear relaxed next week. The Fed may not be able to hike aggressively against a pure supply shock, but it cannot ignore inflation expectations if oil prices keep rising."

JPMorgan's Market Intelligence team noted that market options pricing suggests a core CPI reading around 0.3% month-over-month, with the S&P 500 likely to move about 1%; a reading above 0.35% could trigger a roughly 3% drop in the index.

Andrea Gabellone, Global Head of Equities at KBC Securities, said, "In fixed income markets, short-end rates are extremely sensitive to today's CPI data, indicating the market is pricing in the risk of a Fed rate hike."

U.S. Treasury yields were little changed following a bond market rebound on Tuesday. Tradeweb data shows the two-year yield rose 1.3 basis points to 4.135%, while the 10-year yield increased 0.8 basis points to 4.535%.

SEB strategist Gustav Helgesson stated in a report that, compared to renewed Middle East tensions, "the market is currently more focused on today's CPI data. Uncertainty about how the Fed will act under Kevin Warsh is increasing."

The macro strategist added that higher-than-expected inflation data could trigger another surge in market rates, a stronger dollar, and continued pressure on global equities.

Bloomberg strategist Ven Ram noted, "If U.S. CPI comes in above 4% annualized, the 10-year and 30-year Treasuries could be the most affected. While the 2-year would also face pressure, the market doesn't believe the Fed will act aggressively immediately."

The U.S. Dollar Index is down slightly by 0.1% to 99.87. The index measures the dollar against a basket of currencies including the yen and euro. The euro trades at $1.155, and the British pound is steady at $1.338.

Deutsche Bank analysts stated in a report, "This is an important data point because market speculation about a Fed rate hike has intensified in recent weeks."

They noted this was initially driven by energy price shocks, but has since been followed by three consecutive employment reports that exceeded expectations. The analysts said the labor market portion of the Fed's dual mandate appears increasingly solid, allowing it to focus more on inflation.

Market pricing currently indicates the Fed will implement a 25-basis-point rate hike by year-end, with an additional hike expected next year.

The European Central Bank's two-day monetary policy meeting also begins on Wednesday. It is widely expected to raise rates by 25 basis points to combat rising energy costs, though greater focus will be on policymakers' guidance regarding the future policy path.

In Japan, the dollar trades at 160.36 yen, remaining near the 160 level widely seen as a potential trigger for official intervention. Data released Wednesday showed Japan's wholesale inflation rose at its fastest pace in three years in May, indicating broadening price pressures from the conflict and providing further rationale for the Bank of Japan to consider additional rate hikes.

Bitcoin is down 1.2% to $61,372. Last Friday, it touched a 20-month low of $59,125.

Naeem Aslam, an analyst at Zaye Capital Markets, stated in a report that renewed geopolitical tensions could trigger a Bitcoin sell-off as traders pivot back to cash, dollar liquidity, and traditional safe-haven assets.

Spot gold has plunged 2.1%, losing over $90 during the session to hit a low of $4,161 per ounce, its lowest level since March 23, following three consecutive days of declines.

Lukman Otunuga, Senior Research Analyst at FXTM, said, "Despite geopolitical tensions stimulating safe-haven demand, gold has become a victim of rising inflation risks. The renewed escalation in U.S.-Iran hostilities effectively undermines efforts to end the war."

Otunuga added, "The upcoming CPI report could significantly influence market expectations for Fed action in the second half of 2026. Technically, gold breaking below the 200-day Simple Moving Average (SMA) is a bearish signal that, combined with fundamental factors, could trigger additional selling pressure."

Gold's decline has outpaced market expectations. The spot price broke below the $4,200 level during the session and was last quoted at $4,167.82 per ounce. Its gains for the year have been completely erased, with a cumulative loss now exceeding 2%.

Citi has lowered its three-month gold price target from $4,300 to $4,000 per ounce. The bank warned that if the Strait of Hormuz remains blocked through the end of summer, shrinking gold purchases could push prices down to $3,500 per ounce.

Meanwhile, stronger-than-expected U.S. jobs data has pushed the dollar to a near two-month high, adding extra pressure on dollar-denominated gold. This marks the second time in just a month that Citi has revised its gold price forecast.

In mid-May, Citi publicly expressed a bearish short-term view on gold while predicting prices would reach $4,300 per ounce within three months.

Goldman Sachs has warned the Fed may be forced to restart rate hikes.

In a recent report, Goldman Sachs Chief U.S. Economist Merrick removed the bank's previous forecast for two rate cuts in 2026, replacing it with a prediction for 25-basis-point cuts in June and December 2027. The catalyst for this shift was the strong May non-farm payrolls report.

Goldman Sachs not only delayed the timing of cuts but also doubled its probability forecast for a small Fed rate hike from a prior 10% to 20%. While the bank did not make a hike its "base case," this move indicates the potential distribution of Fed policy outcomes is tilting towards a more hawkish direction.

Regarding hike risks, Merrick wrote, "Resilient economic activity and jobs data have also lowered the bar for a rate hike. This isn't because the data suggests an overheating economy, but because a stronger economic starting point reduces the risk that a hike could ultimately become a 'costly mistake'."

Several top Wall Street investment banks are warning of a potential sharp decline in U.S. stocks.

Data shows momentum trading long positions in U.S. stocks are at historically extreme levels of crowding, with short positions relatively low, creating a highly imbalanced market structure. Combined with persistently high interest rates and narrowing market breadth, a shift in sentiment could trigger concentrated position unwinding and severe volatility.

Barclays predicts this round of fund de-risking could be the largest of the phase, with markets likely to remain under pressure this week. JPMorgan has downgraded its short-term rating on U.S. stocks to tactically cautious, highlighting profit-taking pressure in tech shares.

Simultaneously, a wave of new stock supply is hitting the U.S. market, with a concentration of AI companies going public, which could divert market liquidity and intensify adjustment pressures.

Citi noted that the recent major decline only slightly repaired risk exposure, with Nasdaq bullish positioning still relatively high, leading to intense battles between bulls and bears.

Overall, risks continue to accumulate at elevated levels in U.S. stocks. Under the combined pressure of crowded positions, new stock supply, and high interest rates, the risk of short-term volatility and correction has increased.

Key Stock Movements

SUPER MICRO COMPUTER INC (SMCI) shares plunged 12% after the company announced plans to raise up to $7 billion through equity-linked financing to pay for hardware component purchases.

Cracker Barrel Old Country Store (CBRL) shares surged nearly 11% after the company raised its full-year revenue and adjusted EBITDA guidance. The company reported third-quarter revenue of $797.4 million and earnings per share of $0.29, exceeding market expectations. FactSet survey analysts had anticipated a loss per share of $0.48 on revenue of $776.7 million.

Nike (NKE) shares fell nearly 2%. RBC Capital Markets downgraded the stock from "Outperform" to "Sector Perform," citing that Nike's business recovery is "slower than expected and the scope of improvement is less than previously anticipated."

CAVA Group Inc. (CAVA) shares rose 1%. UBS upgraded the fast-casual restaurant chain's stock rating from "Hold" to "Buy," citing its "highly attractive growth narrative."