In 30 seconds: May PPI came in hotter than expected at 6.5% year-over-year, with core PCE estimates pointing to another firm monthly reading, reinforcing concerns that the Fed remains behind the curve on inflation. In a broad 2026 market reversal, international and value stocks are outperforming US large-caps, the Magnificent Seven are mostly down on the year, and both gold and Bitcoin are among the worst-performing major assets. A potential US-Iran ceasefire deal triggered a sharp drop in oil prices below $90/barrel, with Strait of Hormuz transit flows still severely disrupted and US gasoline inventories at multi-year lows. The European Central Bank raised its key interest rate by 25 basis points to 2.25%, its first hike since September 2023, citing persistent inflation pressures driven by the Middle East energy shock.
The prior month was revised down to 5.7% from 6.0%. On a monthly basis the headline print was 1.1%, nearly double the 0.7% forecast. The prior core monthly reading was revised down to 0.7% from 1.0%. Over the past five years, producer prices have risen a cumulative 26%, compounding at 4.7% annually. The spillover from energy into broader prices is relatively muted for now. Core goods inflation eased slightly in May, while core services inflation continued to move higher. Real average hourly earnings fell -0.7% year over year, the largest annual drop since 2023, worsening from the prior -0.3% decline.
The same energy-driven inflation dynamic behind the PPI and PCE data is also a factor in the 2026 market reversal.
The playbook that worked for two years has stopped working. The trade was simple: buy the biggest names, let momentum do the rest. Now momentum is doing the rest in the other direction. Meanwhile the traditional hedges are not hedging. Something we haven't seen before in any calendar year: both gold and Bitcoin rank as the two worst performing major assets year to date. Bitcoin is down 30% so far in 2026, and gold is off 6%. Gold closed at $4,235 on June 11, bouncing roughly 3% on the day, but the metal recently dropped 4% in a single session, moving well below both its 50- and 200-day moving averages. initial jobless claims: 229,000. You buy the thing that is supposed to go up when everything else goes down, and it goes down too. Sentiment reflects the confusion. AAII bearish sentiment surged to 47.7%, jumping over 10 percentage points in a single week. Bullish sentiment sank to 30.4%, its lowest reading of the year. The backdrop is not catastrophic. Household net worth stood at $183 trillion as of 1Q26, though the pace of growth — just $113.1 billion — was the slowest in roughly a year. Equity losses were offset by gains in real estate and other assets. Market breadth remains strong under the surface, with XLI (Industrials ETF) rallying 3% on the day. The argument from Fidelity's strategist is that rising earnings provide the offset to falling valuations, with price as the residual. Right now the residual is not flattering.
Brent crude dropped roughly $3 per barrel to $90 per barrel, its lowest level since mid-March. WTI fell below that threshold too. Non-Iranian oil transit through the Strait of Hormuz collapsed from 18 million barrels per day prewar to just 1.2 million barrels per day in May, a decline of roughly 93%. In the first 10 days of June, flows ticked up 50% to 1.8 million barrels per day, but that still leaves throughput 90% below prewar levels. US gasoline stocks have fallen 38 million barrels since the start of the war, sitting at 20 million barrels — the lowest for this time of year since 2014. Overall gasoline inventories are down 9%. Vitol Group profits are expected to roughly halve in 2025 to around $4.5 billion. That would still rank as one of the firm's best years on record; before 2020, annual profits never exceeded $3 billion. The global oil market remains incredibly complex, with myriad factors interacting to keep prices under $100 a barrel.
The ECB raised its key interest rate by 25 basis points to 2.25%, its first hike since September 2023. ECB President Lagarde and her colleagues raised interest rates from 2.0% to 2.25%, framing the move as a preemptive strike against renewed inflation pressures and a signal that the ECB won't repeat the mistake of acting too late on inflation. If you are a central banker with a single mandate, and that mandate is price stability, and prices are not stable, the math is not complicated. The numbers behind the decision are unpleasant in every direction. Headline inflation is running at 3.2%. Core inflation sits at 2.5%. The ECB's own inflation outlook has been revised up, now projecting 3% in 2026. Meanwhile the growth forecast was revised lower on income squeeze, penciling in just 0.8%. So you get the worst of both worlds: hotter prices and a weaker economy, with the Middle East war generating inflation pressures underneath all of it. The institutional logic here is old. Why do they hike every time energy prices spike? Because of the 1970s. Unlike the Fed's dual mandate of inflation and employment, the ECB has a single mandate: price stability. When energy shocks push your sole metric in the wrong direction, you do not get to shrug and talk about the labor market. You hike.
Here is what it costs to borrow money right now.
30-year fixed mortgage: 6.52%, up 4 bp on the week
15-year fixed mortgage: 5.84%, up 0.86% on the week
Auto loan rate (60-month): 7.52%, up 4.16% on the quarter
Credit card rate: 21.00%, up 0.14% on the quarter
Prime rate: 6.75%, flat on the day