WS #14754

The dominant market narrative has shifted from geopolitical escalation to de-escalation, driven by a breakthrough in US-Iran diplomacy. Iran's proposal to reopen the Strait of Hormuz has triggered a sharp pullback in oil prices, dampening the 'war premium' that had supported energy equities and pressured airlines. This development counters the previous escalation thesis, stabilizing European markets and easing inflation concerns, though the underlying geopolitical risk remains elevated as the deal is not yet finalized. In the technology sector, capital expenditure intensity is accelerating. Musk has doubled his order for xAI's Colossus 2 chips, signaling a massive expansion in AI infrastructure demand independent of the broader macro environment. Concurrently, Meta's launch of the Muse AI agent has provided a specific bullish catalyst for the stock, contrasting with the broader tech sector's sensitivity to rate hikes. Meanwhile, Apple continues to face headwinds with reports of its worst iPhone slump since the pandemic, creating a divergence within the mega-cap tech group. Macro data remains mixed but stabilizing. The Bank of Japan's bond holdings and ECB lending data show no immediate policy shocks, while European equities rose on the back of the bond selloff pause. However, the US 10-Year yield topping 5% in the previous session remains a lingering overhang, though the oil price drop may provide some relief to real yield pressures.