In terms of US macroeconomics, the May CPI rose 4.2% year-on-year and 0.5% month-on-month, both meeting expectations, indicating overall inflation has climbed back above 4%. However, the core CPI increased 2.9% year-on-year and 0.2% month-on-month, with the monthly figure falling below the expected 0.3%. This suggests the recent resurgence in inflation is primarily driven by energy price shocks rather than a broad-based reacceleration in demand.

The May US PPI rose 6.5% year-on-year and 1.1% month-on-month, significantly exceeding market expectations, reflecting stronger cost pressures at the production end. Nonetheless, the core PPI increased 4.9% year-on-year and 0.4% month-on-month, which was below expectations, indicating that upstream price increases have not yet fully diffused.

For the week ending June 6th, initial jobless claims in the US were 229,000, higher than the expected range of 219,000-220,000. Continuing claims also came in at 1.795 million, exceeding expectations. This implies a marginal cooling in the labor market following the strong non-farm payrolls report.

The preliminary June University of Michigan Consumer Sentiment Index reading was 48.9, higher than the expected 46.0 and the previous reading of 44.8. However, its absolute level remains historically low, suggesting only a slight alleviation of pessimism rather than a significant strengthening in household sector confidence.

Performance of Major Indices

Weekly Index Performance

Last week (June 8th-12th), the S&P Oil & Gas Index fell 0.43% for the week, while the Nasdaq 100 Index gained 2.34% and the S&P 500 Index advanced 0.65%. Nine of the eleven sectors covered by the S&P 500 rose, with the S&P 500 Materials sector leading gains, up 3.00%, and the S&P 500 Communications Equipment sector leading declines, down 1.90%.

Allocation Insights

US Equities

US stocks completed a high-level rebalancing last week amidst a triple impact of geopolitical risks, inflation repricing, and a loosening of crowded AI trades. Small-cap value stocks significantly outperformed large-cap growth stocks. This reflects that capital is not exiting US equities but is rotating from high-valuation, long-duration, purely expectation-driven technology segments towards sectors with stronger earnings support, such as semiconductor hardware, financials, industrials, and some defensive sectors. The May US CPI meeting expectations at 4.2% year-on-year and the core CPI monthly figure of 0.2% coming in below expectations, coupled with the PPI's 6.5% year-on-year rise exceeding expectations, indicates that imported inflation and upstream cost pressures persist. Additionally, the rapid shift in the US-Iran situation from reports of initial clashes early last week to expectations of a "framework agreement" by the weekend caused oil prices and risk appetite to swing violently in sync. This has led the market, ahead of the Federal Reserve's June meeting, to lean towards trading within a framework of "no action in June, but the removal of easing bias, with higher rates maintained for longer."

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