WS #7897

The dominant narrative remains the Iran war and its economic fallout, which is escalating. Iran has rejected a U.S. peace counteroffer, prolonging the Strait of Hormuz blockade. Over 160 oil tankers are stuck in the Gulf, and Brent crude spot prices surged to a $25+ premium over futures. The U.S. allowed a Russian oil waiver to expire, adding supply uncertainty. In response, the IEA coordinated an emergency release of strategic stocks, and the U.S. SPR has released 17.5 million barrels since March. This counters some of the bearish energy supply thesis but does not resolve the core disruption. Inflation data confirms the pass-through: U.S. CPI hit 3.8% annually (highest since May 2023), PPI surged 6% annually, and consumer sentiment fell to a record low of 48.2. The Fed faces a dilemma: markets now price a ~37% chance of a rate hike by year-end, and incoming Chair Warsh inherits a committee with dissents over the easing bias. The ECB and BOE both kept rates on hold but face stagflation risks. In tech, OpenAI is preparing for a confidential IPO filing as soon as Friday, with banks Goldman Sachs and Morgan Stanley. This is a high-signal event for the AI sector. Separately, Nvidia reported a strong beat-and-raise quarter (data center revenue nearly doubled), but the stock slid post-earnings, continuing a pattern of post-earnings weakness. The AI infrastructure investment theme remains intact but faces valuation scrutiny. In China, margin trading hit a record high as tech stocks rally, and Alibaba teased new Qwen AI models. The Trump-Xi summit discussed AI guard rails and Nvidia H200 chip exports, with China treating it as a sovereign decision. This could open a pathway for chip sales to China, a positive for NVDA and AMD. AMD CEO Lisa Su met with China's vice-premier, signaling potential loosening of export controls. The MAG7 narrative is mixed: Nvidia's strong results but weak price action contrasts with AMD and Intel surging on AI CPU demand. Meta announced 8,000 layoffs and 7,000 AI-focused role shifts, signaling aggressive AI investment. The overall macro environment is stagflationary, with energy-driven inflation and slowing growth, but AI capex remains a powerful counter-trend.