Market Pulse

Market Pulse AM | 20260625_TD121

Markets are opening with a strong risk-on tone as easing geopolitical tensions, collapsing oil prices, and renewed confidence in the AI investment cycle combine to support equities while easing pressure across global bond markets.

The dominant narrative has shifted from inflation shock to disinflation relief.

The reopening of the Strait of Hormuz has erased virtually all of the wartime premium embedded in crude oil, triggering a powerful cross-asset response. At the same time, May's PCE report came in at 4.1% year-over-year, the highest reading in three years, but the 0.4% monthly increase undershot expectations, providing investors with reassurance that inflation momentum may be moderating despite elevated headline readings.

Technology is leading the recovery.

Nasdaq 100 futures are up approximately 2% before the open after Micron Technology delivered a stronger-than-expected earnings outlook, reinforcing the durability of AI-related capital spending. The rally follows two consecutive sessions of technology weakness and suggests investors remain willing to buy high-quality AI infrastructure names despite ongoing concerns surrounding higher interest rates.

The recovery is global.

Japan's Nikkei 225 surged 4.61%, the strongest performance among major equity markets, supported by semiconductor strength, yen weakness, and improving sentiment toward global growth. European equities are also advancing broadly as lower energy prices reduce inflation concerns and lessen expectations for additional ECB tightening. Energy-importing economies such as Japan, Europe, and India are emerging as the primary beneficiaries of the oil collapse.

Bond markets are responding accordingly.

Treasury yields have moved lower across the curve following the softer-than-expected monthly PCE reading, temporarily interrupting the aggressive repricing that has dominated June. Even so, markets continue to assign roughly an 80% probability to a September Fed rate hike under Chairman Kevin Warsh, suggesting the broader higher-for-longer narrative remains intact despite today's relief rally.

Central bank divergence remains a defining feature of the macro landscape.

While the ECB's June rate hike now appears increasingly likely to represent a one-off move as oil-driven inflation pressures fade, the Bank of Japan continues signaling additional policy normalization in the months ahead. Meanwhile, Brazil continues to contend with elevated domestic yields and fiscal concerns despite improved growth expectations, underscoring the increasingly fragmented global policy backdrop.

Credit markets continue sending a constructive but selective signal.

Investment-grade spreads remain stable and issuance activity has reached record June levels, reflecting continued institutional demand for higher-quality borrowers. In contrast, high-yield spreads have widened to two-month highs while CCC-rated issuers continue facing mounting financing pressure, reinforcing the late-cycle preference for credit quality over yield.

Oil has become the dominant transmission mechanism.

Brent crude has fallen to approximately $73 per barrel, down nearly 23% this month, after the interim U.S.-Iran peace agreement and the reopening of the Strait of Hormuz restored confidence in global energy supplies. The rapid decline is transmitting a powerful disinflationary impulse across global markets, easing pressure on central banks while supporting energy-importing economies and risk assets.

Not all commodities are telling the same story.

While oil and gold continue to weaken, copper is outperforming as demand linked to AI infrastructure and data-center investment offsets the broader commodity downturn. The divergence suggests that structural capital expenditure remains intact even as cyclical inflation pressures begin to ease.

The dominant transmission mechanism remains:

Hormuz Reopening → Lower Oil Prices → Global Disinflation → Lower Bond Yields → Improved Risk Sentiment

At the same time, another important dynamic continues to unfold:

AI Earnings Strength → Technology Leadership → Global Equity Recovery → Selective Risk Rotation

Brazen Perspective:

Markets are transitioning from pricing geopolitical disruption toward pricing policy normalization.

The collapse in oil prices has significantly altered the macro landscape by reducing one of the most important sources of global inflation pressure. At the same time, resilient AI investment continues to support technology leadership, helping offset concerns surrounding higher interest rates.

The key question now is whether lower energy prices will be sufficient to slow inflation enough to alter the Fed's hiking trajectory. For now, markets are embracing both narratives simultaneously: improving disinflation dynamics alongside continued economic resilience.