U.S. producer prices rose 1.1% in May from the previous month, well above the 0.7% increase economists expected. From a year earlier, they were up 6.5%, also slightly hotter than forecast. Put together, the message was not especially comforting: inflation pressure is still alive, and the labor market is not breaking fast enough to make the Federal Reserve's job easy.

Yet futures were upbeat this morning, boosted by a tech rebound and hopes that the Middle East crisis might be moving, however unevenly, toward diplomacy. The United States and Iran exchanged strikes, but there were also reports of messages being passed between the two sides after a political understanding. Donald Trump said Iranian officials had asked him to stop bombing. Investors took that as a sign that the conflict might not spiral into a larger war.

Oil prices reflected that hope. Brent and West Texas Intermediate both moved lower, despite the fresh attacks. That decline was important. The recent jump in energy prices has already helped push inflation higher, and another oil shock would make life harder for households, companies, and central banks.

Still, the inflation data complicates the story. A hot producer-price report suggests that companies are facing higher costs, and those costs can eventually reach consumers. It also arrives after consumer inflation rose at its fastest pace in three years. The Fed meets next week, and investors are now being forced to consider a less pleasant possibility: inflation may not be a temporary side effect of war and energy volatility. It may be sticky enough to keep monetary policy tighter for longer.

Europe offered a preview. The European Central Bank raised its key interest rates by 25 basis points, taking the deposit rate to 2.25%, the main refinancing rate to 2.40%, and the marginal lending rate to 2.65%, effective June 17. The ECB made clear that the war in the Middle East is adding inflation pressure and that its decision was meant to hold up under several possible scenarios. It also raised its inflation forecasts for 2026 and 2027 because of higher energy prices, while cutting its growth outlook for those years.

That is the central-bank dilemma in miniature: inflation is too high, growth is not especially strong, and geopolitics is making both harder to predict. The ECB says it will move meeting by meeting and avoid promising a fixed path. That sounds sensible.

Back in the United States, investors are also reassessing the artificial-intelligence trade. The semiconductor sector has been under pressure after months of extraordinary gains. The Nasdaq 100 has fallen sharply from its early-June record, and chip stocks have been hit even harder. When stocks like Sandisk, Micron, Intel, Dell, and Marvell have posted enormous gains in a short period, investors eventually start asking whether the future has already been purchased in bulk. That question became harder to ignore after Oracle's results.

Oracle beat expectations and raised its guidance, which should have been enough in a more forgiving market. Instead, its shares fell because investors focused on its heavy data-center spending and the weakness in its traditional software business. The market is no longer simply rewarding any company that says "AI" loudly enough near a capital-expenditure plan. This is progress, of a sort. Very expensive progress, but progress.

The worry is not that companies are investing in AI. The worry is that some are spending as if future profits are guaranteed, when the path to those profits remains unclear. There is a difference between building for demand you can see and building for demand you hope will arrive wearing a cape. Investors have begun to notice.

Then there is SpaceX, which is expected to price its massive public offering ahead of its first trading day. The company is reportedly heading for a valuation around $1.75 trillion, with demand so strong that expectations for a first-day surge are already being treated almost like a weather forecast. The offering could pull money and attention away from other popular technology names, especially if investors decide they need exposure to Elon Musk's orbit.

The SpaceX debut may become a test of this year's appetite for risk. It arrives at a strange moment: AI stocks are wobbling, inflation is hot, central banks are tightening or warning they may need to, and the Middle East remains fragile. Yet demand for a mega-listing is apparently enormous. 

Today's economic highlights:

On today's agenda: the European Central Bank's interest rate decision and the ECB press conference for the Euro Area; In the United States, the weekly jobless claims, the Core PPI, and the PPI will be released. See the full calendar here.

  • Dollar index: 100.088
  • Gold: $4,076
  • Crude Oil (BRENT): $93.77 (WTI) $88.83
  • United States 10 years: 4.52%
  • BITCOIN: $63,042

In corporate news:

  • Tesla's Full Self-Driving technology receives approval in Belgium.
  • Johnson & Johnson says Imaavy showed significant durable hemoglobin response in Phase 3 clinical trial.
  • At Microsoft, the Xbox division is planning massive layoffs next month, according to Bloomberg.
  • Oracle beats expectations and raises its guidance, but the stock drops 10% in after-hours trading due to even higher-than-expected capital expenditures.
  • Applied Materials is expanding its semiconductor production capacity in Singapore.
  • Caterpillar raises its quarterly dividend by 8% to $1.63 per share, payable on August 19.
  • SLB signs a deal with Venezuela's PDVSA to modernize the oil sector using AI.
  • Humana sells its minority stake in Gentiva.
  • Ford's main aluminum supplier restarts its New York plant following fires.
  • Teradyne wins a $139.9 million contract from the Air Force.
  • Target shareholders reject the proposal for an independent chair.
  • SpaceX's IPO is reportedly more than four times oversubscribed, according to Bloomberg.
  • OpenAI is considering drastic price cuts in the face of competition from Anthropic, according to the WSJ.
  • DI Co secures a 21 billion won contract with Samsung Electronics for chip inspection equipment.
  • SK Hynix is considering a U.S. listing in August.
  • MediaTek's revenue rose slightly in April.
  • Today's key earnings reports: Adobe, Lennar Corporation.

Analyst Recommendations:

  • Arthur J. Gallagher & Co.: Jefferies upgrades to buy from hold and raises the target price from USD 235 to USD 265.
  • Chewy: MoffettNathanson LLC downgrades to neutral from buy and reduces the target price from USD 50 to USD 22.
  • Cme Group Inc.: Rothschild & Co Redburn upgrades to buy from neutral with a price target raised from USD 316 to USD 323.
  • Incyte Corporation: William O'Neil & Co Incorporated initiates coverage with a buy recommendation.
  • Marketaxess Holdings Inc.: Rothschild & Co Redburn downgrades to neutral from buy and reduces the target price from USD 189 to USD 134.
  • Casey's General Stores, Inc.: BMO Capital Markets maintains its market perform recommendation and raises the target price from USD 700 to USD 950.
  • Ford Motor Company: Goldman Sachs maintains its neutral recommendation and raises the target price from USD 13 to USD 16.
  • Fortinet, Inc.: CITIC Securities Co Ltd maintains its add recommendation and raises the target price from USD 104 to USD 154.
  • Humana Inc.: Evercore ISI maintains its in-line recommendation and raises the target price from USD 250 to USD 370.