- AI Positioning Unwind Sparks Initial Selloff: The first leg lower in markets appeared to originate overnight in Asia following comments from a Korean policymaker suggesting citizens could receive dividends funded by taxes on AI-related profits. While the policymaker later clarified that this would not involve a new windfall levy on corporate profits, the comments were enough to trigger a sharp selloff across semis and memory names. Miners were hit particularly hard as a result. In my view, the magnitude of the move says more about positioning than fundamentals. The AI complex has become extremely extended, and today likely reflected a classic positioning unwind in an area of the market carrying elevated leverage and crowded longs.
- Hot CPI Reinforces Complicated Backdrop for Warsh-Led Fed: The overnight weakness was compounded by a hotter-than-expected CPI print, with both headline and core inflation coming in above expectations. Headline inflation continues to be heavily influenced by energy prices tied to the Iran conflict, though core CPI also showed signs of firming. Shelter was the largest contributor to the increase, though even core services ex-shelter contributed meaningfully. There is some technical noise tied to the BLS shelter adjustment following last year’s government shutdown, which likely overstated this month’s reading by roughly ~10bps after understating prior months. Still, taken in aggregate, the recent inflation trend is difficult to characterize as dovish.
- Fed Path Continues to Reprice Higher: Fed funds futures continued to move higher following the CPI release, with markets further reducing expectations for cuts and increasingly pricing the possibility of hikes into next year. The long end also sold off, with the 10-year yield rising toward ~4.46%, its highest level since late March. Higher crude prices tied to geopolitical uncertainty are clearly contributing, but today’s inflation data also reinforced the view that the incoming Warsh Fed may inherit a far more complicated inflation backdrop than many expected several months ago.
- Equities Recovered Into Close, Crypto Lagged: One encouraging development was the recovery in equities into the close, particularly within crypto-linked equities and miners. Several mining names reversed sharply intraday and finished materially above their lows, suggesting dip buyers remain active within the AI/HPC-linked crypto equity cohort. Crypto itself did not recover nearly as convincingly, however, with BTC briefly trading below ~$80k before stabilizing closer to ~$80.7k at the time of recording.
- STRC Volumes Softer Than Prior Cycle: One likely explanation for crypto’s relative weakness is softer-than-expected STRC activity. STRC traded roughly ~$371M in volume today during the T-3 window ahead of the May 15th ex-dividend date, below the ~$529M observed during the comparable period ahead of the April cycle. Assuming a similar issuance ratio, this implies Strategy may have only raised roughly ~$250-280M today versus ~$400–450M during the prior cycle. With only two remaining issuance sessions before the ex-dividend date, this raises the importance of tomorrow and Thursday’s volumes for near-term BTC flows.
- Watching PPI and Clarity Markup Next: The next key macro event is tomorrow’s PPI release, which is likely less important than CPI but could still matter if it materially impacts PCE expectations. Beyond macro, attention will increasingly shift toward Thursday’s Clarity Act markup. Thus far, there has not been much signaling from Capitol Hill around the expected outcome, but this could become more relevant over the next 24–48 hours.
- Bottom Line: Today’s selloff appears to have been driven by a combination of AI positioning unwind dynamics and a hotter inflation print that reinforced a complicated macro backdrop for the new Warsh-led Fed. Risks now appear more balanced in the near term, particularly if STRC demand remains softer than prior cycles. That said, the recovery in equities and miners into the close suggests dip buyers remain active, and for now, my base case remains that markets stabilize and attempt to bounce from here in the near-term.
Tickers in this video: BTC 0.75% STRC
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