The April US inflation data landed yesterday, and headline prints were largely in line with consensus – more so if you do not round the values – with the YY number ticking higher by 3.8%, versus the 3.7% estimate and up from 3.3% in March. This also marks the first time in three years that real wages declined, with the US average hourly earnings recently reported at 3.6%. If inflation climbs further, households will have no choice but to draw down savings, borrow, or cut spending. MM data, however, eased to 0.6%, in line with the market’s estimate, down from 0.9% in the previous reading. It was the core measures that stood out, albeit insufficient to move the market’s needle – the YY core accelerated to 2.8%, bettering the 2.7% forecast and up from 2.6%, while the MM core data rose by 0.4%, surpassing the 0.3% estimate and up from 0.2%. We are looking at a reasonably stubborn inflation picture; therefore, the immediate modest uptick in Fed fund futures pricing will not raise too many eyebrows. This also clearly cements the notion that we have a Fed well and truly on hold for the foreseeable future, with the possibility of a more divisive central bank and officials continuing to pull away from the easing bias.Market Defensives Cushion the BlowIn the financial markets, a late-session rotation into defensives clawed back the bulk of the losses across US major equity benchmarks on Tuesday, with the S&P 500 down 0.2% to 7,400. S&P 500 breadth was pretty much even, with the tech sector (XLK) taking a sizeable hit, down 1.5%, while health care (XLV), up 2.8%, did most of the heavy lifting.In the fixed-income space, US Treasury yields bear flattened for a second consecutive session, with the 30-year yield closing above 5.00% and the 2-year yield fast closing in on 4.00% – both recording their highest closes since mid-2025. Markets are now pricing in around 12 bps of tightening by year-end – essentially saying that investors believe there is a 50/50 chance that the Fed hikes rates sometime this year. On that note, Kevin Warsh was confirmed as Fed governor on Tuesday. I would not like to be in his shoes. We have inflation rising on the back of a supply-side shock that the Fed’s monetary policy cannot control, real wages in decline, a relatively stable labour market, and a White House eyeballing lower rates. I just do not see how Warsh can justify policy easing with the way things are.Trump Heads to ChinaTrump is scheduled to arrive in Beijing on Wednesday evening, accompanied by a high-profile business delegation that includes Nvidia CEO Jensen Huang, Apple’s Tim Cook, Elon Musk, and Goldman Sachs’ David Solomon. Talks are expected to include trade, AI chips, the Middle East conflict, and Taiwan. Huang’s seemingly last-minute addition was the headline grabber yesterday, with markets focused on whether Beijing will finally allow Chinese firms to buy Nvidia’s H200 chips. Washington issued licences months ago, but China has blocked its own companies from purchasing them, leaving Nvidia with idle inventory.UK Politics: Starmer on the Ropes The spotlight was well and truly on UK Prime Minister Keir Starmer yesterday, following dismal local election results and a pretty disastrous – ‘we will do better’ – speech on Monday. Starmer declined to resign, despite four junior ministers throwing in the towel and around 90 Labour MPs calling for him to stand down. As of writing, no one has publicly challenged the PM, including Health Secretary Wes Streeting and Greater Manchester Mayor Andy Burnham. A rival challenger would need to secure 20% of Labour MPs’ votes, which means any contender would require the public support of exactly 81 Labour MPs to formally trigger a leadership election.It was a pretty miserable picture in UK GILTs yesterday, with longer-dated maturities now at levels not seen since 1998! The GBP also fell as much as 0.8% versus the USD. This combination of rising yields and a declining currency means investors are unloading UK assets, signalling a confidence crisis in the UK’s fiscal trajectory. I am sure I do not need to highlight the consequences of this backdrop, which includes surging government borrowing costs that leave less money for public services, and imported inflation on the back of a weaker pound.Day Ahead: US PPI in FocusFollowing the US CPI print on Tuesday, today welcomes the April US PPI data, with the YY headline number expected to jump to 4.9% from 4.0% in March, and the core forecast to rise by 4.3% from 3.8%. A hotter-than-expected print today would confirm that inflationary pressure is not confined to end consumers and is also building upstream, and essentially reinforce the Fed’s cautious stance. According to the forecast distribution, headline PPI at 5.1% would trigger a genuine surprise (only one desk forecasts above this number), while for the core component, I would need to see 4.5% or above to trigger a similar surprise reaction that would underpin a bid in the USD, as markets will likely price in additional tightening.