Good morning. Andrew here. Markets are turning negative as investors absorb just how tenuous the cease-fire in Iran really is. (Sorry to say it, but we told you so yesterday.) Another big story we’re watching is the setback Anthropic experienced yesterday in federal court, when a panel of three federal appellate judges declined to stay the government’s designation of the company as a supply chain risk while their legal battle played out. Katie Haun, the venture capitalist and a former federal prosecutor, wrote on X that the judge panel had been stacked against Anthropic. More below. And Andy Jassy, the C.E.O. of Amazon, just published his annual shareholder letter — and threw down the gauntlet at Nvidia (a business partner.) “Our chips business is on fire, changes the economics for AWS, and will be much larger than most think,” Jassy wrote. “Virtually all A.I. thus far has been done on Nvidia chips, but a new shift has started.” (Was this newsletter forwarded to you? Sign up here.)
The costs of cease-fire uncertaintyThe cease-fire between the U.S. and Iran is holding on into a second day, if barely. More worrisome for the global economy is that little has changed when it comes to the Strait of Hormuz. Stalled shipping traffic through the waterway, once a conduit for roughly a quarter of the world’s oil and natural gas exports, is dampening the exuberance that bolstered markets yesterday. And questions about whether the strait will fully reopen or remain under Iran’s control — among many other issues — will hang over talks that could begin soon in Pakistan. The latest:
The state of the strait remains a central issue. Iran has demanded control of the passageway, and according to The Wall Street Journal has been creating a fee schedule for ships to pass through. (Among the requirements, according to The Journal: paying in crypto or in Chinese renminbi, and forking over up to $2 million for a supertanker.) Such a toll violates international law, according to Gulf states and oil companies who adamantly oppose any move to let Iran charge money. But whether Washington would stop Tehran doing so permanently is unclear:
That uncertainty has kept traffic through the strait at a virtual standstill, with just four ships having sailed through yesterday, according to S&P Global Market Intelligence. (That’s down from an average of nine a day over the past five days.) It’s unclear whether paying tolls now would violate sanctions on Iran. And maritime insurance covering the strait remains very expensive. Western companies are still grappling with the uncertainty. Ed Bastian, the C.E.O. of Delta Air Lines, told analysts yesterday that he expected oil prices to be “higher for longer,” even if a lasting peace is reached. (He also predicted that weaker airlines would have to take “pretty significant steps” to adjust to a world of more expensive fuel.) Separately, bankers normally stationed in the United Arab Emirates were still weighing whether to return. All eyes will turn to the talks in Islamabad on Saturday. Vice President JD Vance is expected to lead the U.S. delegation in negotiations with Iranian officials, with a two-week deadline hanging over them. Experts said both Washington and Tehran had incentives to strike a compromise, despite their maximalist public demands. Key to the talks is how much each is willing to bend on key issues like whether Iran can retain uranium for enrichment. One possible result, analysts said, was a limited agreement that kicks the can down the road — cold comfort for businesses seeking a firmer resolution.
Fed officials see no need to lower interest rates. Policymakers at the central bank have broadly concluded that the potential inflation-boosting effect from the war in the Middle East means that they should stand pat on borrowing costs, minutes from the Fed’s last policy meeting show. That puts added attention on the release of inflation this week, which is expected to show a steep jump in consumer prices. Amazon revamps its relationship with the U.S. Postal Service. Under the terms of a tentative new deal, the online retail giant, which accounts for more than half of the postal service’s package deliveries, will ship 20 percent fewer packages through the service. Amazon’s move could complicate the struggling postal service’s plan to end years of losses. A British computer scientist denies that he is Bitcoin’s inventor. “I’m not satoshi,” Adam Back declared on X yesterday after an investigation by The Times’s John Carreyrou identified him as Satoshi Nakamoto, the pseudonymous creator of the cryptocurrency. (Back appears on today’s episode of “The Daily,” as does Carreyrou.) Who’s made money on Iran?Canny traders routinely profit from conflict, pandemics and political instability. But the war in the Middle East hasn’t played out so smoothly for Wall Street. Some big hedge funds have watched their recent market bets implode amid a spike in volatility that resulted in major stock indexes selling off and commodity prices going haywire, several news outlets have reported. After a blowout rally yesterday, a here-we-go-again vibe has returned to markets. This war has been especially hard to trade on, even for seasoned market pros, Joachim Klement, the head of strategy at Panmure Liberum, a London-based investment bank, told DealBook. Low trading volumes and uncertainty about Washington’s military strategy, he added, have led a lot of fund- and portfolio managers to stand pat. “There’s been a very high reluctance to make a mistake,” Klement said, adding that he hadn’t seen such hesitation to trade since March 2020, when the coronavirus pandemic was raging. Stocks plunged into a bear market that month, before governments and central banks intervened with monetary and fiscal policy bazookas that involved giant stimulus spending and asset purchases. President Trump’s mixed war messages have put investors on the back foot. The president’s barrage of conflicting social media posts, in which he had threatened Iran and then backtracked hours later, were enough to dissuade many traders whom Klement spoke with from buying oil futures, for example. Misread Trump’s public pronouncements and you risk “accumulating a lot of underperformance in a very, very short time,” he said. Not everybody is standing still. Yesterday’s rebound in stocks — the Stoxx 600, a broad European index, rose 3.9 percent for its best one-day gain since 2022, according to Deutsche Bank — minted some winners. And investors dumped $950 million in oil futures contracts this week just hours before Trump announced a cease-fire and prices plunged, Reuters reports. (There were also a wave of suspiciously timed war bets on Polymarket, the prediction market platform, just before the cease-fire was announced, according to Bloomberg.) But buy-and-hold investors aren’t faring too badly. Despite the war’s heavy economic toll, the S&P 500 has fallen by less than 2 percent since the war began on Feb. 28. The light trading volume has kept losses to a minimum, Klement says.
High stakes for Meta’s new A.I. modelOne of yesterday’s big stock market winners was Meta. Shares in the social media giant rose 6.5 percent (and are up again in premarket trading), adding roughly $95 billion to its market capitalization, on investor hopes that its huge investments in artificial intelligence would soon pay off. The latest: Mark Zuckerberg, Meta’s C.E.O., yesterday introduced a new A.I. model, Muse Spark. It is the first major splash under the company’s superintelligence lab, which Zuckerberg has poured billions into in a bid to overhaul the company’s struggling A.I. efforts and catch up with rivals like Google, OpenAI and Anthropic. There’s a lot at stake. The release of Muse Spark will focus scrutiny on Alexandr Wang, Meta’s chief A.I. officer, who runs the lab. Meta spent $14.3 billion to acquire Wang and his team.. Muse Spark is aimed at Meta’s consumer base. Zuckerberg classified the model as an assistant that would specialize in health, social content, shopping and games, and it will be rolled out on the company’s social media apps, which have about 3.5 billion daily active users. Will that be enough? Muse Spark performed nearly as well as rival models on tests that measure writing and reasoning. (That wasn’t the case last month.) But it lagged in a crucial area — the coding skills used by business customers, a lucrative market segment that Anthropic is leading.
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