PPI Shocks 1.4 Percent, Warsh Confirmed Governor 51-45, Trump Lands Beijing, CSCO AMC, Brent $107.

Wednesday pre-market, 9:00 AM ET, thirty minutes after the April PPI print and thirty minutes before the open. The set-up overnight is the cleanest second-leg stagflation re-rate of the cycle, and the tape is showing it in size. April PPI for final demand printed plus 1.4 percent month over month, the largest single-month jump since the March 2022 supply-chain shock, against a consensus of plus 0.5 percent and our note view of plus 0.6 percent. The year-over-year line is now 6.0 percent, the highest since December 2022, with services up 1.2 percent and goods up 2.0 percent, telling the same story the April CPI told twenty-four hours ago at 3.8 percent headline and 2.8 percent core. The 10Y is at 4.45 percent in the cash session, six basis points wider on the day and twelve basis points wider on the week, with the 2Y at 3.99 percent and the curve steepening into the $42B 10Y auction at 1:00 PM. Equity futures are mixed but informative: Nasdaq 100 e-mini futures are at 29,184, up 0.30 percent, lifted by a Tencent revenue beat at plus 9.1 percent year over year, a Micron retail upgrade pre-market, and the SK Hynix and Samsung bid that resumed overnight after Monday’s profit-take. S&P 500 futures are at 7,348, off 0.10 percent, with Dow futures heavy at 49,441, down 261 points or 0.50 percent on the cyclicals dragging through the PPI tape. Brent is at $107.40, off 0.35 percent and breathing a touch after Monday’s plus 3.4 percent ramp, with WTI at $101.50. Senate confirmed Kevin Warsh to the Fed Board last night by 51 to 45 along largely party-line vote with only Fetterman crossing, and the chair confirmation vote lands today for the four-year concurrent term. President Trump’s Air Force One departed Andrews at 4:00 AM ET for the eleven-hour leg to Beijing for tomorrow’s summit opening with President Xi, with the 17 CEO delegation including Cook, Musk, and Ortberg traveling separately. Cisco prints after the close with consensus at $1.03 EPS on $15.6 billion in revenue, the first read on AI infrastructure order conversion since the Q2 print where the company raised the fiscal-year AI order book past $5 billion.

Three things to internalize before the open:

1. The PPI shock at plus 1.4 percent month over month against the plus 0.5 percent consensus is the cleanest pipeline read on the energy passthrough and the services sticky-services dynamic, and the right structure is to hold the 2Y put spread while rolling the steepener into a 30Y short. The PPI services line at plus 1.2 percent is the cleanest single-print read on the inflation-being-sticky thesis since the December 2022 print, with the contribution from trade services, transportation, and warehousing all elevated and the energy goods passthrough adding to the goods line. The Cleveland Nowcast for May headline now sits at 3.9 to 4.1 percent versus the consensus 3.7 percent, and the June FOMC dot plot path is the binding catalyst from here. The market priced in a 30 percent chance of a December rate hike this morning, up from 18 percent Tuesday morning and 7 percent Monday morning, and that re-pricing is exactly the right read on the Warsh hawkish anchor. We hold the 2Y June 17 4.10 / 4.30 put spread at the 17-tick mark, took the gains to 22 ticks at the 8:30 print, and we are rolling the 2s10s steepener at plus 18 basis points (up from plus 14 entry) into a 30Y June short via the TYZ pair at 4.97 percent entry. Total duration short sized at 0.30 percent DV01.

2. The Warsh governor confirmation overnight plus the chair vote today is the structural hawkish handoff the curve has been pricing since March, and combined with the PPI shock it is the cleanest catalyst stack for a stagflation regime call in the cycle so far. The 51-45 vote was three votes lighter on the yes side than our Monday model and four lighter than the Friday model, with Fetterman the only Democratic crossover and three Republican absences. The four-year chair vote today should clear by a similar margin around mid-afternoon, and Warsh is sworn in Friday with the Powell handoff effective on the close. The June FOMC dot plot we project, post-PPI shock, shows two fewer cuts than the March SEP, with the 2026 median moving from 75 basis points of additional easing to 25 basis points and the longer-run terminal moving from 3.00 to 3.25 percent. The Warsh installation by Friday close ends the Powell-Williams policy era cleanly and the regime read is real. We add to the SMH June 19 $310 / $330 call spread, opened Tuesday from the CEG roll at $4.20 net debit, and we open a new SPY June 30 $720 / $700 put spread at $5.10 net debit sized 0.20 percent NAV as the index-level hedge against the chair vote tape risk.

3. The Trump-Xi summit opens tomorrow with the Iran agenda crowding tariffs and rare earths off the headline schedule, and the cleanest expression of the deliverable risk is long BA into the call vertical we have held since Wednesday plus a tactical China consumer pair via JD long against BABA short. Air Force One departed at 4:00 AM ET, with the 17 CEO delegation including Musk and Cook traveling on a separate Boeing, and the CSIS preview pegs the aircraft purchase deliverable at 200 to 500 units. The Iran agenda is the binding catalyst: Trump is expected to renew the call for China to join the international Hormuz operation, and Beijing has so far resisted, which sets up the cleanest signaling read on whether China will tolerate the Brent passthrough into Q3 or whether Beijing will lean on Tehran in exchange for tariff relief. We hold the BA June 19 $230 / $260 call vertical at the $5.30 mark (up 29 percent from $4.10 entry) and we open a tactical JD long versus BABA short at one-to-one notional, sized 0.10 percent NAV per leg, on the JD Q1 revenue beat at plus 4.9 percent and the JD Retail margin expansion to 5.6 percent versus BABA’s higher legal-overhang and Ant Group restructuring uncertainty into the May 15 print.

What Posted Overnight

April US PPI Print (Released 8:30 AM ET)

Our take on the PPI tape: The April PPI is the largest single-month jump since the March 2022 supply-shock spike, and it is the cleanest pipeline read on the energy-passthrough plus sticky-services dynamic that the CPI tape showed yesterday at 3.8 percent headline and 2.8 percent core. The services line at plus 1.2 percent is the part that will surprise the Fed sell-side modeling community, with trade services, transportation of freight, and warehousing all running above the December 2022 print levels. The June FOMC dot-plot path is the binding catalyst from here, and the Cleveland Nowcast for May headline now sits at 3.9 to 4.1 percent versus the consensus 3.7 percent. The structural read on a 1.4 percent monthly PPI plus a 3.8 percent CPI is bearish for duration, bearish for cyclicals, bullish for energy and materials inflation hedges, neutral for gold given the real-yield walk-up, and a structural anchor for the Warsh hawkish handoff.

Warsh Confirmed to Fed Board 51-45 (Senate Tuesday PM)

Our take on the Warsh path: The 51-45 vote was three votes lighter than our Monday model, and the dovish tail (Coons flipping after Tuesday lunch) showed up as a yes-not-no rather than the yes-with-conditions we modeled at the Friday close. The chair vote today is the structural moment for the curve: a 51-plus confirmation with the same coalition tees up the Warsh hawkish-handoff anchor the front end has been pricing since March. The June FOMC dot plot, with Warsh chairing his first SEP cycle, is the cleanest path to the two-fewer-cuts repricing we model at 70 percent probability. Powell’s last FOMC was March; the May meeting was a hold; June is Warsh’s first dot plot. The right structural read is the front of the curve gets a real bear-flatten from here unless the labor data softens by 50K-plus on the May NFP.

Tencent Q1 2026 (Reported 7:00 AM ET Hong Kong)

Our take on Tencent: Cleanest single-print read on the China consumer-tech complex since the November 2023 stimulus rally. The international games line at plus 13 percent is the cleanest validation of the cross-border revenue ramp, with the WeChat eco-system and the Yuanbao AI capex line both running above consensus. The read-across to BABA (May 15 BMO) is mixed: BABA’s gaming and ad lines are smaller, but the cloud capex and AI infrastructure narrative is the binary. We open the tactical JD long vs BABA short pair at one-to-one notional and sized 0.10 percent NAV per leg.

Iran / Hormuz Box Score (Wednesday 9:00 AM ET)

Memo Probability Path (Updated Wednesday)

The path has now drifted lower for a seventh straight session, and the structural read is that the negotiation has rolled past the Trump-Xi window into Geneva Phase 2 territory. Brent at $107 plus the OPEC+ May 21 production response overlay carries the upside risk on a Saudi-Emirati response to the UAE attacks. The right read is to hold the energy long size at 0.60 percent NAV and not press above 0.80 percent before the OPEC+ ministerial readout.

Asia and Europe Overnight

Europe is bouncing off the Tuesday minus 1.2 percent sell-off, with the FTSE 100 leading at plus 0.8 percent as PM Starmer survived the Tuesday no-confidence chatter and UK gilts rallied with 10Y gilts off the highs by four basis points. The bounce is shallow given the US PPI shock and the Trump-Xi summit overhang, but the Stoxx 600 sector breadth is positive (10 of 11 sectors green), with energy and miners leading and only utilities red. Asia was mixed with the Nikkei printing a record close on the back of banks and AI capex names, Hang Seng holding pre-summit, and Kospi continuing the Tuesday memory profit-take at a much lighter minus 0.29 percent versus Tuesday’s minus 2.29 percent.

Trump-Xi Summit | Day 1 Thursday in Beijing

The summit opens Thursday at 9:00 AM Beijing time (9:00 PM Wednesday ET) with the formal arrival ceremony at the Great Hall of the People, followed by the bilateral leaders’ meeting and the working dinner with the 17 CEO delegation. The Iran agenda is the binding catalyst with Trump expected to renew the call for China to join the international Hormuz operation that Beijing has so far resisted. Tariff agenda items expected on the table: the October trade truce extension (likely confirmed), a Board of Trade framework for non-sensitive goods, China soybean and beef purchase commitments, and a Boeing aircraft order in the 200 to 500 unit range. Rare earths and Taiwan agenda items expected but unlikely to produce a deliverable. Friday Day 2 is the joint statement window.

Our take on the summit: The cleanest deliverable is the Boeing order at the high end of the CSIS range; we hold the BA June 19 $230 / $260 call vertical at $5.30 mark (up 29 percent from $4.10 Wednesday entry) into the readout. The second-cleanest read is the Iran-Hormuz request: if Beijing offers any signaling beyond the standard “China supports peace” boilerplate, Brent compresses two to four dollars on the headline. If China explicitly rejects participation in the Hormuz operation, the memo path implications are mild but the energy long is constructive at $107 with the OPEC+ May 21 overlay carrying the upside.

Macro Calendar | Week Ahead Update

CSCO Preview | Wednesday AMC (4:30 PM ET Call)

Cisco prints Wednesday after the bell with consensus at $1.03 EPS on $15.56 billion in revenue for fiscal Q3, both above the company guide of $1.00 to $1.02 EPS and $15.4 to $15.6 billion revenue. Management raised the FY26 AI infrastructure order book outlook to over $5 billion at the Q2 print after Q2 alone booked $2.1 billion in AI orders. The structural read into the print is the AI router and Silicon One hyperscaler order conversion against Arista and Broadcom, plus the Splunk integration revenue trajectory in year two with 500 new logos added in H1 FY26. Margins are the swing factor: last quarter’s gross margin walk-back tied to memory-cost pressure was the post-print catalyst for the 6 percent intraday sell-off, and the same dynamic is the binary into tonight. Options traders are pricing a 9.87 percent post-earnings move, well above the trailing four-quarter average of 5.71 percent.

Our take on CSCO: The structural setup is constructive for a beat-and-raise, but the gross-margin walk-back is the binary that has driven the last three earnings reactions. We have no position into the print but are watching for a sub-2 percent pre-print drift, which would unlock the May 16 $72 / $78 call spread at $1.45 net debit at 0.10 percent NAV. The read-across into the print: ANET (May 28 AMC), AVGO (June 5 AMC), and the broader AI-router cohort halo for NVDA’s May 20 print.

CEG Position Update | Day Two

The CEG roll into SMH is the right structural call on the Tuesday tape. The premarket bid on Tencent and the Micron retail upgrade lifted the SMH cohort overnight, and we add 0.10 percent NAV to the SMH June 19 $310 / $330 call spread at $4.45 mark on the open, taking total sizing to 0.30 percent NAV. The structural anchor is the NVDA May 20 print and the $78 billion Q1 FY27 revenue guide; the binding question is whether the demand-side capex ramp confirms the multiple. The Tencent Yuanbao AI capex commentary is the cleanest cross-validation we have seen this earnings cycle.

What to Watch Wednesday Into Thursday Open

Wednesday May 13 morning to midday

• 8:30 AM APRIL PPI POSTED: 1.4% m/m / 6.0% y/y (hot, biggest jump since Mar ‘22)
• 9:30 AM Cash open; PPI-shock digestion the binary
• 10:00 AM White House readout on Beijing summit prep + Treasury briefing
• 11:00 AM IRGC commander statement window on Iran “never bow” follow-through

Wednesday May 13 afternoon and close

• 13:00 $42B 10Y Treasury auction (rescheduled): Bid-to-cover sub-2.45 would be the cleanest tail risk
• 14:00 Senate vote on Warsh Fed chair (4-year concurrent term)
• 14:30 Powell ceremonial farewell remarks (last public Fed remarks expected)
• 16:30 Cisco (CSCO) print AMC with conference call 4:30 PM ET
• 21:00 ET: Trump arrival Beijing; working dinner with Xi delegation

Thursday May 14 (pre-open)

• Asian session response to CSCO print and Trump arrival
• 8:30 AM Jobless claims + April retail sales (the labor + consumer cross-read)
• 8:30 AM BMO: Walmart (WMT) with Q2 tariff guide the binary
• 9:00 AM Beijing: Trump-Xi summit Day 1 opens at Great Hall of the People
• 16:30 AMC: Applied Materials (AMAT), Deere (DE)

Trade Ideas | Sized for the PPI Shock + Warsh Hawkish Handoff

Long 2Y June 17 4.10% / 4.30% Put Spread (Trim Half)

Hold from 12 ticks entry, mark 22 ticks (+83%) post the 8:30 PPI print. We trim half the position at the mark and hold the second half into Friday expiry on the carry from the Warsh chair vote today plus the $42B 10Y auction tail risk at 1:00 PM. PT 28 ticks on the remaining half; stop on a sub-2.75 percent core print of any forward CPI revisions or a dovish Warsh confirmation speech.

Risk: A dovish Warsh confirmation speech today resets the front-end repricing. Vertical caps loss at remaining half cost basis.

Long 30Y June Short via TYZ Pair (New)

Open new short at 5.02 percent yield entry, sized 0.10 percent DV01. The PPI shock plus Warsh chair vote stack is the cleanest catalyst for a real bear-flatten that pulls the long end higher with the front end. The 30Y auction calendar in two weeks plus the index-level rebalance pressure on the long end is the structural overlay. PT 5.20 percent; stop 4.92 percent.

Risk: A flight-to-quality bid on Iran escalation could compress the 30Y to 4.85 percent. Sized to be losable.

Long XLE June 19 $99 / $108 Call Spread + Short May $96 Put (Hold)

Hold from Sunday add at $2.55 mark, current mark $3.10 (+22% from Sunday, +52% from Wednesday), total energy long sizing at 0.60 percent NAV. Brent at $107 plus the OPEC+ May 21 ministerial overlay plus the Trump-Xi Hormuz request risk is the cleanest tape for energy this cycle. PT $108 spread max.

Risk: A surprise US tabling of a stripped-down MoU at the Trump-Xi summit collapses the front of the energy curve. Structure caps loss at $96 strike assignment.

Long Brent August $95 / $108 Strangle (Hold)

Hold from Friday entry at $4.30, mark $5.95 (+38%). The structure pays max on either a memo signing rally back to $94 by mid-July (now 18 percent probability, down from 21 percent Tuesday) or a Hormuz re-escalation through $108 over the next 10 sessions (now 48 percent probability, up from 45 percent Tuesday). Sized 0.3 percent NAV. PT trim level $8.50 or $0.40.

Risk: Brent settling in the $98 to $103 range collapses both wings. Sized to be losable.

Long SMH June 19 $310 / $330 Call Spread (Add)

Add 0.10 percent NAV at $4.45 mark on the open, taking total sizing to 0.30 percent NAV from the CEG roll Tuesday at $4.20 entry. The Tencent Yuanbao AI capex commentary plus the Micron retail upgrade plus the Kospi shallower minus 0.29 percent profit-take is the cleanest cross-confirmation of the AI infrastructure demand ramp into NVDA’s May 20 print. PT $330 spread max.

Risk: NVDA print May 20 walks back the Blackwell ramp guidance. Vertical caps loss at $4.45 add cost.

Short SPY June 30 $720 / $700 Put Spread (New, Index Hedge)

Open new at $5.10 net debit Wednesday open, sized 0.20 percent NAV. The structure is the index-level hedge against the Warsh chair vote tape risk plus the PPI shock cyclicals drag plus the Trump-Xi Iran-agenda overhang. PT $20 spread max; stop on an S&P close above 7,500 within two sessions.

Risk: A clean US-Iran one-page MoU before Friday EOD or a softer Q2 labor print on May 30 NFP. Vertical caps loss at $5.10.

Long BA June 19 $230 / $260 Call Spread (Hold Into Trump-Xi)

Hold from Wednesday entry at $4.10 net debit, mark $5.30 (+29%), sized 0.20 percent NAV. The 17 CEO Beijing delegation including Boeing’s Kelly Ortberg is the cleanest single-name signaling on the aircraft purchase deliverable expected at the summit. CSIS preview pegs the range at 200 to 500 units. PT $260 spread max.

Risk: Iran agenda crowds out tariffs and Boeing deliverable is deferred to a working-level follow-up. Vertical caps loss at $4.10.

Long JD vs Short BABA Pair (New, China Consumer Pair)

Open new 1-to-1 notional pair at JD $52.40 long, BABA $148.20 short, sized 0.10 percent NAV per leg, total 0.20 percent NAV. The JD Q1 revenue beat at plus 4.9 percent plus the JD Retail margin expansion to 5.6 percent versus BABA’s heavier legal-overhang and Ant Group restructuring uncertainty into the May 15 print is the cleanest single-print pair on the China consumer-tech complex. PT plus 8 percent on the spread; stop minus 3 percent on the spread.

Risk: BABA cloud capex beat at May 15 closes the spread. Pair caps notional exposure at the entry notional.

Long Gold via $4,650 / $4,800 Call Spread vs Short $4,500 Put (Hold)

Hold from Friday at net entry $0.30, mark $1.20 (+300% on the small entry, down from $1.35 Tuesday). Real yields widening on the PPI shock pulls gold back to $4,707 from $4,742, but the haven bid is intact on the kinetic Iran tape and the OPEC+ May 21 overlay. Spot $4,707 marks a path back into $4,800 strike. PT $4,900; reduce on $4,800 print.

Risk: A clean memo signing plus dollar rally would compress gold to $4,550. Put strike caps downside.

Long PLTR June $160 / $185 Call Vertical (Hold)

Stock at $134.80 Tuesday close, off 1 percent on the AI capex de-rating session and PPI shock pre-open drag. Hold the June $160 / $185 call vertical at $4.85 net debit from Friday roll, sized 0.3 percent NAV. The plus 85 percent revenue growth print is the structural validation; the recent valuation pullback is tactical. NVDA May 20 is the cohort halo catalyst. PT $185.

Risk: Burry-style short escalation or a softer Q2 print from peers that disappoints. Vertical caps loss.

Short NET May 16 $230 Puts (Hold)

Hold from Friday entry at $5.40, mark $13.10 (+143%). Sizing now 0.18 percent NAV after the one-third trim Monday at the plus 93 percent mark and another quarter Tuesday at plus 115 percent. We hold the residual through Friday expiry. PT $215.

Risk: Q2 commentary that re-frames the layoff as productivity gain. Stop on a $260 close.

Signal Tracker | Wednesday 9:00 AM ET Mark (Post-PPI)

Assessment: 7 BULL / 14 BEAR / 8 NEUTRAL. The mosaic stays defensive on the duration leg post the PPI shock, but the equity tape is structurally split: semis bid (Tencent halo, Micron upgrade) versus cyclicals drag (Dow heavy, PPI shock pipeline read). We hold the book at plus 5.4 percent net long gross (down from plus 5.8 percent Tuesday morning), with the duration short widened via the new 30Y add, the SPY put spread index hedge layered on, the SMH cohort added to, the BA Trump-Xi expression intact, and the energy long sizing carried at 0.60 percent NAV. The book is positioned for a 60 percent PPI carry-through into the May CPI print (up from 38 percent Monday), an 82 percent Hormuz steady-state through Q3 (up from 80 percent Tuesday), a 55 percent probability the Trump-Xi summit produces a Boeing deliverable, and an 18 percent memo signing probability against the market-priced 33 percent.

Quick Earnings Reactions Watch | Wednesday Through Friday

The Wednesday-Thursday-Friday earnings cohort is the cleanest read across the four sectors we cover. CSCO tonight is the AI router cohort halo into NVDA; WMT BMO Thursday is the consumer + tariff passthrough binary; AMAT AMC Thursday is the memory equipment cycle plus China revenue (the Kospi cross-check); BABA BMO Friday is the China cloud capex plus AI infrastructure binary, paired against our JD long.

What Could Be Wrong

The Wednesday mark is a structurally bearish read on duration after the PPI shock, a structurally hawkish read on the Iran path with memo probability at the lowest of the cycle at 18 percent, and a structurally bullish read on the AI-power cohort via the SMH add and the BA expression on the Trump-Xi deliverable. The three biggest sources of error in this setup are:

1. A surprise dovish Warsh confirmation speech today that resets the front-end repricing on the chair vote. This is the lowest-probability scenario (10 percent), but the front-end positioning is the most asymmetric to the surprise. We are running the 30Y short at 5.02 percent entry, and a dovish Warsh speech could compress the long end to 4.85 percent within two sessions while the front end rallies hard. The right play is to hold the short at 0.10 percent DV01 and not press into the chair vote cadence.

2. A clean US-Iran one-page MoU surfaced via Pakistani back channel before Friday EOD that defers Hormuz language to Geneva Phase 2. This would mechanically lift memo probability to 35 to 40 percent on the headline and compress Brent four to seven dollars on the move. The energy long would take a 20 to 28 percent mark down before the kinetic pattern reasserts. We hold size and let the dust settle, not chase the headline. The Tencent halo plus the Trump-Xi tariff truce extension would partially offset the energy give-back via the broader risk-on path.

3. A Beijing tariff or rare-earth surprise from the Trump-Xi summit that reprices the trade-war risk premium. This is the highest-probability scenario at 15 percent given the summit is fundamentally about Iran rather than trade, but a Trump speech at the Friday joint statement could reset the tariff path. The right play is to size the SPY put spread index hedge at 0.20 percent NAV and not press above 0.30 percent before the Friday close.

The book is not betting on any single catalyst; it is positioned for the dispersion across the calendar to continue widening, which is the cleaner read on a week that has CPI (Tue, posted hot), PPI (Wed, posted shock), Warsh chair confirmation (Wed afternoon), four major US prints (CSCO, WMT, AMAT, DE), the Trump-Xi summit, the Israel-Lebanon Washington round, and the BABA print all within five sessions.

This note reflects information available as of May 13, 2026, 9:00 AM ET, thirty minutes after the April PPI release. Markets open at 9:30 AM ET. The $42B 10Y Treasury auction at 1:00 PM and the Warsh chair confirmation vote may reset positioning by the close. For internal use only. Not investment advice.