Thursday, May 7

Markets rallied as investors priced in reduced Middle East conflict risks following the U.S. blockade of Iranian ports, which traders viewed as pressuring Tehran toward negotiations and limiting oil supply disruptions. The S&P 500 hit a historic high, recovering fully from conflict-induced drops, while European indices rebounded sharply though still lagging pre-conflict levels; Japan's equities also returned to prior marks. This confidence countered consensus fears of prolonged escalation, with desks unwinding hedges amid falling Brent crude prices that eased stagflation worries.

Oil's decline drove the moves, as Brent tumbled on expectations of quicker conflict resolution, weighing on the dollar and boosting rate-easing bets ahead of the new Fed chair's tenure. U.S. 10-year yields dipped slightly after recent selloffs, reflecting dialed-back aggressive cut expectations, while Nasdaq outperformed on resilient economic signals. Gold held steady as a haven amid lingering uncertainties, and crypto stayed sidelined without fresh catalysts. The dollar weakened against majors, amplifying commodity relief.

Context ties to 2025's volatility from Liberation Day tariffs and the historic government shutdown, which had slowed GDP to 1.8% despite AI capex and consumer resilience; Fed's fall insurance cuts to 3.25-3.50% range now face tariff passthrough risks keeping inflation in upper-2% territory. Yesterday's high-frequency data reinforced U.S. growth acceleration above consensus, validating the Fed's lag on the curve.

Friday's Supreme Court ruling on IEEPA tariffs matters because it could trigger immediate passthrough to prices, forcing markets to reassess sticky inflation and Fed pause bets if upheld.