A look at the day ahead in European and global markets from Stella Qiu

Is the penny finally dropping for investors in stocks? The bond market has been sounding the alarm for weeks - runaway inflation means rate hikes are firmly back in play.

The AI-fuelled rally looks like it's running out of road. Wall Street may have scaled fresh highs, helped along by a 4% pop in Nvidia as CEO Jensen Huang hitched a ride with Trump to Beijing, but it is a sea of red in Asia.

Japan's Nikkei slid more than 1% after producer prices posted their biggest jump in three years, bolstering bets the Bank of Japan will hike in June. South Korea's KOSPI tumbled over 3%. Europe is staring down a roughly 1% drop at the open.

And looming over everything is the Strait of Hormuz. Iran says about 30 ships are getting through, but that's still a trickle versus normal pre-war traffic. Trump, after talks with Beijing, is signalling impatience.

Concerns are growing of the strait staying choked beyond June, draining global reserves and tipping the world into a full-blown energy crunch.

Smart money in bond markets seems to be already bracing. Soft U.S. Treasury auctions this week were the warning shot, highlighting fading investor appetite just as inflation heats up.

The latest 30-year sale cleared at 5% for the first time since 2007. Yields hit 5.061% on Friday, a 10-month high. Even the front end isn't safe, with the two-year pushing up to 4.055%, a one-year peak.

With oil climbing and consumers still spending, markets are rapidly repricing the Federal Reserve's policy path. The odds of another rate hike this year have more than doubled in a week to 45%, even under Trump's pick to lead the Fed, Kevin Warsh.

Put it all together, dialling it down might not be the worst idea for investors heading into the weekend.

Key developments that could influence markets on Friday:

-- Trump set to wrap up his state visit to China

(Editing by Shri Navaratnam)