Market Report.
📈 Yesterday, we got the US inflation data. As expected, but high. Inflation seems to be confirmed daily. We’ll see.
📊 US May CPI annual inflation was 4.2%, matching forecasts and up from 3.8% prior. Monthly CPI was 0.5%, same as expected but down from 0.6%. Core CPI was 2.9% year-on-year. Supercore rebounded to 0.27% monthly and 3.67% annually. Short-term rate futures rose after this data.
🌏 Core PPI figures, which have been rising in China, after two years pointing to deflationary risks, are now driving inflation in the US as well, rising to an annualised rate of 4.4%. PPIs are leading indicators of inflation.
🤝 President Trump may be giving new Fed Chair Kevin Warsh a political honeymoon. Trump’s comments that the latest inflation numbers are “great” align with Warsh’s view that the Iran war is a temporary supply shock that will ease with time.
🗣️ Trump said he “loves the inflation” hours after the Bureau of Labor Statistics reported annualized inflation jumped to 4.2 percent. He predicted that when the war is over, inflation will come down like a rock. This contrasts sharply with his years of attacking Warsh’s predecessor Jerome Powell for not cutting rates fast enough.
💬 Trump said: “The numbers were great. You know what I really love? I love the inflation. You know why? Because as soon as this war is over … when the war is over, it’s coming down, it’s going to come down like a rock.”
🏛️ Warsh argued at his confirmation hearing that he is most interested in the underlying inflation rate, not one-time price changes from geopolitics. This approach of looking through a supply shock means letting the Iran energy spike work through the system, even if the problem is becoming more drawn out than originally promised.
📉 Market odds overwhelmingly favor the Fed holding its short-term interest rate steady at 3.5 to 3.75 percent at next week’s meeting.
🔺 But some Fed officials, including the Dallas and Cleveland Fed presidents, have recently said they favor rate increases this year rather than cuts.
💵 Market response: US Treasury bonds yields retreated; the two-year note, which recently hovered around 4.2%, fell to 4.10% (10 bp), indicating reduced fears of rate hikes, although it has since rebounded to 4.14% over the last few hours.
Is the Strait of Hormuz open?
🛡️ Trump revealed a covert U.S. military operation that has been escorting and moving oil tankers through the Strait of Hormuz at night. He said they have been taking out millions of barrels every night, using ships with no lights, exploiting Iran’s damaged radar systems. He claimed this is why oil prices are 85 to 90 dollars a barrel instead of 250.
📣 Later on Truth Social, he stated that the secret mission has moved more than 100 million barrels of oil and over 200 commercial ships safely through the strait. He declared that the United States of America controls the Strait of Hormuz, not Iran.
🤫 The operation had been kept quiet to avoid compromise. Trump revealed it now because he said Iran had figured it out, and he no longer needed to keep it secret.
🚢 A growing number of oil tankers are sneaking through the Strait of Hormuz by turning off their transponders and using other stealthy methods. This is allowing oil flows to increase from a trickle to a steadier stream, shrinking Iran’s leverage over global energy markets.
📦 About 2 million barrels a day of oil and related products are now flowing out of the Gulf, according to Rapidan Energy Group. That remains far below normal levels, but is much higher than earlier in the conflict. These flows, along with a plunge in Chinese buying and surging U.S. exports, have helped bring oil prices down nearly 30 percent from their wartime peak.
🏦 Goldman Sachs’ Delta One head noted that a lot of negative news has been thrown at the oil market, but prices are not rising. He concluded that barrels are still getting through Hormuz, visibly or otherwise, and that Iran’s leverage may be far lower than many assumed. The geopolitical risk premium becomes difficult to sustain if there is no credible mechanism to materially disrupt flows.
🛢️ Kuwait and the UAE have recently offered to sell oil outside Hormuz, indicating their barrels crossed the chokepoint. Abu Dhabi National Oil Company sold at least 14 million barrels in a recent tender. Roughly a quarter of the non-Iranian large tankers trapped inside the Gulf had escaped by late May, though around 90 remain stranded.
🎯 The US targeted an oil vessel carrying Iranian fuel and personnel, with reports suggesting casualties.
⚓ A tanker was hit northeast of Sohar, Oman. The vessel was the Settebello, a Palau-flagged chemical and oil products tanker.
🚨 The strike was carried out by U.S. forces, not Iran. A U.S. precision missile hit the engine room, causing a fire. U.S. Central Command confirmed the strike, stating the tanker was attempting to transport Iranian oil in violation of the U.S. naval blockade on Iranian exports.
⚰️ At least one crew member was killed and two others were reported missing. The ship had a crew of 28, including 24 Indian seafarers. Omani authorities rescued most of the crew and no oil spill was reported.
📩 India protested the incident and summoned the senior U.S. diplomat in New Delhi.
Is the war back?
✈️ The United States and Iran traded air attacks for a second straight day, further undermining the fragile April ceasefire. The latest escalation began earlier this week after an American Apache helicopter was downed near the Strait of Hormuz.
📺 President Trump told Fox News the strikes would stop shortly but threatened to resume heavy bombing if Iranian leaders did not immediately sign a peace agreement. Oil prices rose nearly three dollars on his escalation threat.
🔥 Iran’s Revolutionary Guard launched counter-attacks on eighteen U.S. military targets at airbases in Kuwait and Bahrain, as well as the U.S. Fifth Fleet in Bahrain. It later fired twelve ballistic missiles at the al-Azraq air base in Jordan for a second consecutive night.
🛳️ U.S. Central Command denied the strait was closed and said commercial ships were still transiting. Defense Secretary Hegseth said the strikes would advance military interests and enhance the diplomatic position, adding that if negotiation requires bombs, the U.S. will negotiate with bombs.
✈️ During last night, Kuwait closed its airspace on Thursday due to “Iranian aggressions” and intercepted “hostile aerial targets” following U.S. strikes on Iran. Iran reportedly destroyed eighteen targets linked to U.S. forces in Kuwait and Bahrain. Bahrain’s air defenses intercepted Iranian aerial attacks, prompting its interior ministry to urge civilians to find safety.
⚠️ The situation escalated after U.S. strikes on Iranian military targets ordered by President Trump, responding to Iran’s aggression. Trump indicated on Fox News that he spoke with Iranian officials, stating the bombing would cease soon but left the possibility of further military action open. He emphasized that Iran had taken too long to negotiate and threatened that they would “pay the price.”
📈 Oil prices rose sharply amid the tensions, with Trump claiming that military operations would return oil prices to lower levels once finished. Concerns arose that oil could reach $150 per barrel if fighting continues, exactly the numbers that have been suggested recently in previous reports, keep that price in mind.
⚖️ Iran accused the United States of striking reservoirs that supplied drinking water to ten villages and called it a calculated war crime. The Pentagon did not immediately respond.
🌍 Fighting also continued in the parallel war in Lebanon. Israeli airstrikes killed at least thirteen people in southern Lebanon, while Hezbollah claimed fresh attacks against Israeli forces and sirens sounded in northern Israel.
Europe no longer trusts the US.
📉 A new survey from the European Council on Foreign Relations covering 15 countries shows that only 11 percent of Europeans now view the United States as an ally that shares their interests and values. This figure is down from 16 percent six months ago and 22 percent in November 2024.
🛡️ Majorities in every country surveyed are no longer confident that the United States would come to their aid if they were attacked. Most people instead believe that at least some European countries would help them in a crisis.
📉 Confidence in the American security guarantee has fallen to a historic low. The report cites Trump’s Middle East aggression, threats against Greenland, vows to withdraw troops from European bases, and skepticism towards NATO as drivers of this trend.
⚙️ Exactly the kind of public sentiment needed to justify the EU’s plans for military spending and the creation of a European army. Is the arms industry moving to Europe, the new market?
💂 Europeans are increasingly open to higher defense spending. On average, support for increased national defense budgets has risen by 4 percentage points compared to last year. Italy is the only country where a clear majority remains opposed.
💶 However, there is significant backing for collective EU borrowing to finance greater defense spending. On average, 47 percent support the idea while 35 percent are opposed, with the strongest support in Portugal, Denmark, the Netherlands, and Spain.
Meanwhile, unlike Trump, the ECB seems to be worried about inflation.
📈 The ECB is set to raise interest rates on Thursday for the first time since 2023, lifting its benchmark deposit rate to 2.25 percent from 2.0 percent. The move is described as an insurance hike aimed at preventing surging energy costs from the Iran war from spreading more broadly across the euro zone economy.
🔥 Inflation in the 21-country currency bloc is already above 3 percent, well in excess of the ECB’s 2 percent target, while economic growth remains very weak. This backdrop has economists split over the case for tighter policy.
📉 The bank’s new projections are likely to show inflation peaking around 4.2 percent late this year before falling sharply in 2027. Financial markets expect another two rate hikes over the coming year, with the next move seen as soon as September.
🦅 Analysts at JPMorgan and Societe Generale said the meeting will have a hawkish feel, even if formal commitments to further hikes are avoided.
⚠️ The ECB’s interest rate hike could damage a European economy that is already fragile following years of failed policies and lack of growth, with a weakening labour market in its leading economy, Germany, and sluggish private consumption.
Corporate News.
🚀 SpaceX has drawn more than 250 billion dollars of investor demand for its IPO, which is seeking to raise 75 billion dollars. The deal is running at three and a half to four times oversubscribed, with long-only funds placing sizable orders.
🤝 SpaceX president Gwynne Shotwell and finance chief Bret Johnsen attended a lunch meeting with about 300 institutional investors at Morgan Stanley in New York. Elon Musk briefly joined some Zoom meetings with potential investors during the roadshow.
📉 The offering comes amid volatile markets, with the Nasdaq and bitcoin declining. Some analysts have speculated that selling by investors raising funds for the SpaceX IPO may be contributing to the broader market retreat. In other words, investors are selling to obtain liquidity and participate in the IPO. Money comes out of one place to go into Musk’s pocket in the other.
🧾 Jim Chanos, one of the bearish traders in the technology sector, criticized the SpaceX IPO, saying the company’s 1.75 trillion dollar valuation is not justified by any reasonable assumptions over the next five years. He argued the offering is fueled by hopes and dreams, with stories about Mars colonies and space data centers used to justify the price.
🔍 Chanos noted that in bull markets investors put a premium on promises, while in bear markets they put a discount on reality. He called SpaceX a different animal than Tesla, pointing out that SpaceX is valued at 90 times its sales compared with Tesla’s 14-times multiple.
🏷️ SpaceX is set to raise 75 billion dollars at a 1.75 trillion dollar valuation in the largest IPO ever, nearly three times the Saudi Aramco listing.
⚠️ Despite skepticism over the valuation and governance concerns, many short sellers remain cautious about betting against it after a rally in trillion-dollar tech stocks has punished bearish bets.
💼 Oracle also plans to raise funds.
💳 Oracle plans to raise nearly 40 billion dollars through debt and equity financing in fiscal 2027. Its shares fell 8.9 percent in extended trading as investors reacted to the scale of capital spending and rising debt.
🏗️ Capital expenditures for fiscal 2026 reached 55.66 billion dollars, above the company’s 50 billion dollar target. Oracle expects up to 95 billion dollars in capital spending in fiscal 2027, with up to 25 billion dollars of that expected to be repaid by customers.
🛰️ A massive Stargate data center being built with OpenAI will be more than three-quarters complete within 90 days. Concerns persist over how the spending will be funded. The CFO said gross margins will step down as data center projects ramp up, but free cash flow seems to remain negative while capex comes in well above estimates.
📈 Oracle reported quarterly revenue of 19.18 billion dollars, slightly above expectations, and adjusted profit per share of 2.03 dollars, exceeding the 1.96 dollar estimate.
The War of Memes?
🧩 OpenAI published a report yesterday revealing that Chinese propagandists used the company’s flagship chat tool to generate opposition to Donald Trump’s tariffs and intervene in American debates over data centers and AI.
🖼️ According to Reuters, One group of Chinese-speaking users employed ChatGPT to create slogans and cartoons that criticized Trump’s trade and tech policies. The cartoons depicted Trump swinging a hammer at a wall labeled “Global Future” and sawing apart a ladder he was standing on. The content was later posted to X, and the group also used the platform to generate comments in Chinese, Italian, and Japanese.
🏢 Another set of users was traced to a Chinese technology company that performed government work. That group tried to shape debates over AI and data centers, a contentious issue where more than a dozen U.S. states have enacted or are considering restrictions on construction.
🎨 Sample cartoons shared by OpenAI portrayed the industry as greedy profiteers whose electricity consumption harms ordinary citizens.
🏛️ The Chinese Embassy in Washington said it was not familiar with OpenAI’s research, firmly opposed any groundless attacks or smears against China, and stated that Beijing is working to ensure AI is a force for good for all.
Market View.
📉 Inflation coming in line with expectations confirms the uptick, and a resumption of attacks in the Middle East brings us back to a bearish market. In recent hours, S&P 500 futures are rebounding higher, trying to recover from yesterday’s falls, currently trading at 7,325 points. Nasdaq 100 futures are trading at 28,825 points.
💱 The US Dollar Index (DXY) continues to move sideways near the 100-point mark, forming a possible bullish pennant on the charts. EUR/USD is attempting to hold above 1.1550, but with potential bearish projection below the 1.15 handle. GBP/USD is at 1.34, facing strong selling pressure.
📈 In Europe, futures are trying to recover from yesterday’s declines. DAX 40 futures are climbing to 24,225 points at present. Euro Stoxx 50 futures are trying to regain the 6,050-point level.
🛢️ Crude oil saw gains due to the resumption of fighting in the Middle East, with spot Brent surpassing $95.50 in recent hours, although it is pulling back sharply to $92.50 at present.
🥇 Gold futures also weakened and fell below the $4,300/oz support, touching near $4,050/oz in recent hours, from where they have rebounded to the current $4,130/oz.
₿ Bitcoin is trying to survive after the steep falls endured last week, holding around the $62,650 mark.
