WS #6453

The dominant theme remains the escalating crisis in the Strait of Hormuz, with a new attack on a bulk carrier by small craft off Iran reported by UKMTO, Al Jazeera, and multiple news outlets. This marks at least two dozen attacks since the war began, confirming the narrative is ESCALATING despite a fragile ceasefire. The US has responded to Iran's 14-point peace proposal via Pakistan, but Trump has rejected it, stating Iran has 'not yet paid a big enough price' and that further strikes are a possibility. This hardline stance, combined with the new attack, suggests de-escalation is not imminent. The OPEC+ decision to increase production by 188,000 barrels/day in June is a symbolic move that is unlikely to offset the supply disruption from the Strait of Hormuz blockade, as spare capacity is largely trapped behind the blockade. The US has become the largest oil exporter, but this is draining US inventories rapidly. Separately, Spirit Airlines has ceased operations, stranding thousands, a direct consequence of high oil prices from the Iran war. This is a negative signal for the airline industry. The US is also withdrawing 5,000 troops from Germany, widening the NATO rift. In a separate development, Ukraine struck Russian oil targets, including a key loading port and shadow fleet tankers, escalating the conflict. The market is balancing AI/tech enthusiasm against the economic drag of higher energy prices, with flows into risky assets at levels not seen since Q4 2021, per a Bluesky post. This suggests a potential risk-on sentiment that could be fragile if oil prices continue to rise. Key developments in this window include: (1) A new attack on a bulk carrier near the Strait of Hormuz, reported by UKMTO and Al Jazeera, confirming the ongoing threat to shipping and oil supply. (2) Trump's rejection of Iran's 14-point peace proposal, stating Iran has 'not yet paid a big enough price,' which reduces the likelihood of a near-term ceasefire and keeps oil prices elevated. (3) OPEC+ decision to increase output by 188,000 bpd in June, but this is largely symbolic as the Strait of Hormuz remains blocked, limiting actual supply increases. (4) Ukraine's strikes on Russian oil infrastructure, including a key loading port and shadow fleet tankers, which could further disrupt global oil supply and support prices. (5) Fed's Kashkari stating the Iran war limits the Fed's ability to provide rate guidance, suggesting rates may stay higher for longer, which is negative for growth stocks. (6) A poll showing 76% of voters disapprove of Trump's handling of the cost of living, indicating political pressure that could lead to policy shifts. (7) The US troop withdrawal from Germany, which widens the NATO rift and could impact defense stocks. (8) Tesla's FSD milestone and Apple's new CEO era, which are positive for tech but may be overshadowed by macro headwinds.