AI optimism and Middle East reality

I cannot believe how quickly this has come around, but the first full week of June is now upon us. Monday opened on a cautious footing following the weekend’s developments (or lack thereof). On the whole, it looks like it is shaping up to be another week of persistent unease between the AI trade and Middle East uncertainty.

Asian markets catch a bid

Asia-Pac equities caught a solid bid overnight, sending Japan’s Nikkei 225 and South Korea’s KOSPI to fresh records, adding nearly 1% and 4%, respectively.

Sentiment received a further boost from Nvidia (NVDA) CEO Jensen Huang's keynote in Taipei, where the world’s largest company confirmed its push into the Windows PC market with a new ARM-based chip developed alongside MediaTek and manufactured by TSMC.

Oil climbs as US-Iran talks stall

The primary macro driver remains the oil market. Both key benchmark prices – Brent and WTI – are up 1.5% and 2.5%, respectively, as hopes for a swifter resolution between the US and Iran were somewhat dashed over the weekend.

Both sides continued to exchange revisions to a draft agreement covering the truce extension and the reopening of the Strait of Hormuz, though concrete progress remained elusive. Tehran is pushing for exclusive authority over vessel transit and unconditional access to frozen funds – positions that the US appears unlikely to accept.

Is Trump’s electoral clock ticking?

President Trump took to social media to insist the deal squarely addresses Iran's nuclear ambitions. I think there is an unequivocal urgency from Trump to get this over the line, with higher gasoline prices not sitting well with most Americans ahead of November's congressional elections.

Let’s be frank: markets have been (and continue to do so) confidently pricing in a near-term peaceful resolution in the Middle East that, in diplomatic reality, is not yet supported. Further escalation between the US and Iran – particularly in the Strait – would likely amplify market volatility, pushing oil and bond yields higher.

Powell draws a line in the sand

Jerome Powell – the now Fed governor after stepping down as Chairman recently – used a Boston award ceremony to deliver an unambiguous warning: any administration that removes Fed officials over policy disagreements sets a precedent others will exploit. The remarks are timely as the Supreme Court is expected to rule shortly on the administration's attempt to remove Fed Governor Lisa Cook, the first such move in the Fed's history, and a ruling that erodes those protections would, in my view, move both rates and the USD meaningfully.

The week ahead: Key event risk

We have quite a bit of event risk to get our teeth into this week, with today's May US ISM Manufacturing PMI print hitting the wires at 2 pm GMT. Economists expect the headline PMI number to improve to around 53 from 52.7 in April. However, what will undoubtedly be more important than the headline figure is the prices-paid subindex, which provides an up-to-date reading on whether energy-driven costs are feeding through to broader inflation.

The May US ISM services PMI is due on Wednesday, alongside the May ADP employment data, before Friday's highlight: the US May NFP, with the median estimate currently around 82,000, down from 115,000 in April.

In my current view, a broadly strong payrolls report this week would likely send front-end yields and the USD higher – a move that essentially reaffirms the Fed’s higher-for-longer stance. Conversely, a meaningfully softer print – sub-50 (the market’s current minimum estimate) – would have the opposite effect and potentially boost stocks as well.