Fed rate cut bets flip to hike bets as oil volatility rattles bond markets
Every market move this week traced back to one question: will the US and Iran reach a deal?
US President Donald Trump said Washington was in the "final stages" of negotiations with Iran, according to a pool report cited by CNBC, briefly lifting sentiment across Wall Street and Asia-Pacific.
Reuters cited Iranian sources reporting that Supreme Leader Ayatollah Mojtaba Khamenei issued a directive that near-weapons-grade enriched uranium should not leave the country.
The directive directly complicates Trump's stated objective of dismantling Tehran's nuclear programme.
US Secretary of State Marco Rubio told reporters there had been "some good signs" in the talks, Reuters reported, but said a deal would be unfeasible if Tehran implemented a tolling system in the Strait of Hormuz.
A senior Iranian source told Reuters that no agreement had been reached, though gaps had narrowed.
The back-and-forth drove violent swings in crude.
Brent briefly surpassed US$109 per barrel Thursday before erasing all gains and falling 2.3 percent to settle at US$102.58, according to AP News.
By Friday's early Asia session, Brent recovered 1.9 percent to US$104.52 a barrel while WTI advanced 1.5 percent to US$97.81 per barrel, CNBC reported — though Reuters noted Brent remained on track for a 6 percent weekly decline.
The disruption forced a significant repricing of the rate outlook.
Markets are now pricing in possible US Federal Reserve rate hikes by year-end, versus expectations of two cuts before the war began.
Mitch Reznick, head of fixed income at Federated Hermes, told Reuters the linkage between oil prices and global rates is "unusually strong," reflecting how "broad-based and borderless this shock has become."
What began as a shift in inflation expectations is now feeding into realised inflation, he added, reinforcing the case for keeping policy "tighter for longer."
Robert Conzo, CEO of The Wealth Alliance, told CNBC that oil at US$100 or above could create "short-term concerns" around inflation and significant headline risk.
The Cboe Volatility Index sitting around 17, he noted, signalled investors were "feeling pretty comfortable."
Jason Pride, chief of investment strategy and research at Glenmede, told Reuters that with earnings season largely over, market attention had returned squarely to Iran.
"The market, on a near-term basis, is going to be finding its way based on rumors or actual announced deals regarding Iran," Pride said.
The Dow Jones Industrial Average rose 276.31 points, or 0.55 percent, to a record closing high of 50,285.66 Thursday.
The S&P 500 gained 0.17 percent to 7,445.72 and the Nasdaq Composite added 0.09 percent to 26,293.10.
Nvidia fell 1.8 percent despite beating Wall Street expectations on earnings and guidance and unveiling an US$80bn share-repurchase programme, Reuters reported.
AP News noted the decline reflected profit-taking after the stock surged nearly 70 percent over the prior year.
"People are saying, 'We expect more,'" Conzo told CNBC. "They just want more to the point where more becomes unrealistic."
Walmart fell 7.3 percent after offering weaker-than-expected second-quarter profit guidance, Reuters reported.
CFO John David Rainey warned of "somewhat higher retail price inflation in Q2 and the second half of the year" if the "elevated cost environment persists."
CNBC reported that Japan's Nikkei 225 surged 3.14 percent Thursday after April exports rose 14.8 percent year on year on a surge in semiconductor shipments, then added a further 1.36 percent Friday.
Japan's core inflation eased to 1.4 percent in April, its lowest since March 2022 and below the 1.7 percent forecast, complicating the Bank of Japan's rate-hike path, Reuters reported.
South Korea's Kospi jumped 8.42 percent Thursday, with Samsung Electronics up more than 8.5 percent after management averted a strike involving more than 47,000 workers through a wage agreement, and SK Hynix gaining 11.2 percent, CNBC reported.
Daniel Yoo, global strategist at Yuanta Securities Korea, told CNBC's Squawk Box Asia he expects the Kospi to reach 10,000 by year-end.
SoftBank Group shares surged nearly 20 percent on the back of Nvidia's earnings, while China's CSI 300 dropped 1.39 percent Thursday before recovering 0.78 percent Friday.
