Market snapshot
Futures tied to the primary U.S. stock benchmarks moved into negative territory on Thursday, and global oil prices rose, as a fresh exchange of strikes between the United States and Iran dented investor hopes for a near-term peace agreement. The dynamics in energy markets and incoming inflation data weighed on sentiment across asset classes.
Futures and equity positioning
By 03:37 ET (07:37 GMT), futures showed modest declines across the board: the Dow futures contract had lost 53 points, or 0.1%, S&P 500 futures were down 11 points, or 0.1%, and Nasdaq 100 futures were lower by 99 points, or 0.3%. Those moves followed a session in which the main U.S. averages closed modestly higher earlier in the week.
Analysts at Vital Knowledge noted that some participants still held out hope that an agreement to end the conflict in Iran could be reached in coming days, but that optimism was checked after the White House described a Memorandum of Understanding draft shown on Iranian state television as a "complete fabrication."
Market breadth was mixed. A pullback in Brent crude futures and a string of "decent" earnings reports from retailers such as Abercrombie & Fitch and Bath & Body Works, along with "sanguine" commentary from firms at a widely followed corporate conference, helped propel meaningful gains in consumer discretionary names, according to Vital Knowledge. At the same time, energy-linked stocks faced pressure and traders took profits on some of the technology names that had been bid up recently.
New exchange of strikes between U.S. and Iran
Reports indicate the U.S. military carried out additional strikes in Iran on Wednesday, following Iranian drone attacks against commercial vessels transiting the Strait of Hormuz, according to the Wall Street Journal, which cited two officials familiar with the matter. Kuwait's military also said it had intercepted missile and drone attacks, ending a weeks-long interval without strikes in the area.
The Wall Street Journal reported that U.S. forces shot down a drone and targeted a drone-control station near Bandar Abbas, a port city in southern Iran. An official speaking to Reuters characterized U.S. actions as "measured, purely defensive and intended to maintain" a fragile ceasefire.
Meanwhile, Iran's Islamic Revolutionary Guard Corps said it had struck an American base and warned that it would retaliate against any future attacks. The renewed kinetic exchanges have complicated diplomatic efforts to secure a lasting truce.
Oil market reaction
Against the backdrop of continued diplomatic talks that have yet to yield a settlement to the three-month conflict, Brent crude prices rose by 2.8% to $96.95 a barrel. That level keeps Brent under the $100-per-barrel mark but well above pre-conflict readings.
The partial closure of the Strait of Hormuz has tightened global energy supplies, given that roughly one-fifth of the world's oil and liquefied natural gas normally transits the channel off Iran's southern coast. Those disruptions have contributed to elevated oil prices, which present a risk of broader inflationary pressure and could weigh on global growth should higher energy costs persist.
Inflation data in focus - U.S. PCE for April
Adding to market attention this week is the U.S. personal consumption expenditures (PCE) price index for April, a closely watched inflation gauge favored by the Federal Reserve. The headline PCE is projected to accelerate to 3.8% from 3.5% on a year-over-year basis, while the month-on-month pace is seen slowing to 0.5% from 0.7%.
The core PCE reading, which removes food and energy due to their volatility, is expected to tick up to 3.3% year-on-year and to match March's monthly increase of 0.3%. Because the Fed has cited the PCE as a central input when considering policy moves, the upcoming print is poised to influence expectations about the future path of interest rates.
Recent Fed communications have revealed internal disagreement among officials over how aggressive policy should be, particularly in light of concerns that the energy shock from the Gulf tensions could push price pressures higher. Those differences have increased the market's anticipation that the Fed and other central banks might be required to raise rates again to rein in inflation if the energy-driven price impulse persists.
SpaceX-Anthropic computing arrangement clarified
In separate market-moving corporate news, Elon Musk said on Thursday evening that SpaceX's arrangement to supply computing capacity to artificial intelligence startup Anthropic is structured as an initial 180-day lease without long-term commitments. That statement followed an earlier disclosure that SpaceX would provide Anthropic with compute from its Colossus data center through May 2029.
Responding to commentary on social media about the deal, Musk wrote that "SpaceX has not committed to leasing Colossus for years, although it's possible that may be what happens." He added that the Anthropic agreement includes a 90-day notice period for mutual cancellation after the initial 180 days and said the short-term nature of the lease was requested by SpaceX because of the company's potential internal compute needs.
What this means for markets and investors
The combination of renewed hostilities in the Gulf, upward pressure on oil, and a closely watched inflation release has created a layered risk environment for markets. Energy markets and inflation-sensitive sectors are especially exposed to developments in the Strait of Hormuz and to the PCE reading, while consumer discretionary stocks have shown that favorable earnings and positive corporate commentary can still lift selective parts of equity markets even amid broader geopolitical uncertainty.
Traders and portfolio managers will be watching the PCE print closely for signals on whether the inflation impulse from energy prices is broadening or remaining contained to the energy complex. At the same time, developments in the Gulf will be monitored for any escalation that could further tighten global energy markets.