Inflation Hit. AI Demand Didn't.
GOOD MORNING, Friday delivered the clearest picture yet of what the Iran shock is doing to markets. March CPI jumped 0.9%, the biggest monthly increase in nearly four years, with gasoline alone accounting for almost three quarters of the rise. Treasury yields moved higher and Wall Street finished mixed. Yet the AI demand story refused to crack: TSMC reported first-quarter revenue up 35.1%, reinforcing the idea that advanced-compute spending remains structurally strong. The weekend added one small piece of relief — three supertankers crossed Hormuz as U.S.-Iran talks began in Islamabad — but the negotiations remained tense and the strait was still the central inflation switch. MARKETS | TLDR
ENERGY INFLATIONGasoline Just Did Most of the Fed's Inflation ProblemU.S. consumer prices rose 0.9% in March, the largest monthly increase since June 2022, taking annual inflation to 3.3% from 2.4% in February. The composition was extraordinary: gasoline prices jumped 21.2%, their biggest increase in the government's consistent series, and accounted for nearly three quarters of the entire monthly CPI move. Energy overall rose 10.9%. That matters because the inflation shock is still concentrated enough for investors to hope the Fed can look through it — but large enough that policymakers cannot ignore it. Core CPI rose only 0.2% for the month and 2.6% from a year earlier, but economists warned that March captured only the initial pass-through from the war. Higher diesel can raise freight costs, jet fuel can lift airfares, and expensive energy can eventually work its way into a wider range of goods and services. The market therefore faces a timing problem. Oil has already fallen sharply from its wartime peak, but consumer prices respond with a lag. Even if diplomacy succeeds, the inflation data can continue worsening before it gets better. That keeps the Fed from treating the recent drop in crude as an immediate green light for easier policy. AI DEMANDTSMC Says the AI Buildout Is Still Running HotTSMC reported March revenue of NT$415.19 billion, up 45.2% from a year earlier and 30.7% from February. Revenue for the first three months of 2026 reached NT$1.134 trillion, a 35.1% increase from the same period last year. The company did not publish full quarterly earnings yet, but the monthly sales data gave investors an early read on demand for advanced chips. That matters because TSMC sits underneath nearly every major AI infrastructure narrative. Nvidia, Apple and other leading chip designers depend on its most advanced manufacturing capacity. When TSMC's revenue keeps expanding at this pace even through a geopolitical and energy shock, it suggests hyperscaler and accelerator demand remains strong enough to absorb a much harsher macro backdrop. The next test is margins and capacity, not simply revenue. TSMC reports full first-quarter results on April 16, when investors will get updated guidance on advanced-node demand, capex and supply constraints. For now, Friday's number says the AI cycle has not yet been derailed by oil, inflation or war. That does not make valuations immune to higher yields — but it gives the fundamental side of the trade something real to lean on. HEADLINES
UPCOMING
DEEP INSIGTHSMarch CPI: The Energy Shock in One TableRead the primary BLS release for the composition rather than just the 0.9% headline. Energy rose 10.9%, gasoline jumped 21.2% and accounted for nearly three quarters of the monthly CPI increase, while core inflation remained much calmer. That gap is the key variable for how the Fed interprets the shock. TSMC March Revenue ReportThis is the cleanest primary-source read on AI semiconductor demand available before full earnings. Q1 revenue rose 35.1% year over year and March alone increased 45.2%, providing a useful fundamental counterweight to the macro anxiety coming from oil and inflation. |