Morning Report | AI capex re-accelerates, crude risk premium
$MSFT AI capex raised, margin pressure · $AMZN cloud compute tight, spending ramp · $USO Hormuz risk premium, wild swings · $TLT Fed hold, record dissent, Warsh lift · $SPY DHS shutdown risk
Market Pulse
AI
7 events
Megacaps are lifting AI capex plans as cloud demand stays compute-constrained, reinforcing a multi-year buildout with near-term cash and margin strain.
Last 24 hours
Amazon beat Q1 EPS and revenue; AWS sales rose 28% y/y to $37.59B, while AI infrastructure spend drove trailing-12-month free cash flow down 95% to $1.2B.
Amazon guided Q2 net sales to $194B–$199B versus ~$188.9B consensus and reiterated 2026 capex could reach ~$200B; it also pulled Prime Day forward to June.
Microsoft forecast 2026 capex of about $190B versus ~$155B consensus, citing roughly $25B from higher memory/component prices; Azure grew 40% and guided 39%–40% constant-currency growth next period.
Alphabet raised 2026 capex guidance to $180B–$190B and said 2027 spending will significantly increase; Q1 capex was $35.7B and management said it is compute constrained, citing Google Cloud growth around 63%.
Meta lifted 2026 capex to $125B–$145B on higher memory/component costs and reported DAP of 3.56B versus 3.62B estimate; Qualcomm guided Q3 revenue below consensus but said data-center chip shipments to a large hyperscaler start this year.
Market reaction
Qualcomm shares were initially pressured on weaker Q3 revenue guidance, then reversed higher in after-hours trading after management said it will begin shipping data-center chips to a large hyperscaler this calendar year.
Our view
The AI buildout remains intact as AMZN, MSFT, GOOGL, and META commit to higher multi-year capex, supporting AI hardware and infrastructure demand despite near-term cash and margin compression. Monitor whether compute constraints and component pricing pressures ease, as that is the clearest path to better profitability without slowing spend.
What could change our view
Hyperscalers materially cut capex if cloud demand momentum fades.
Component and depreciation costs keep rising, forcing broader investment pullbacks.
Tickers: $AMZN, $MSFT, $GOOGL, $META
U.S. Fiscal
3 events
DHS shutdown strains Coast Guard operations and FEMA disaster funding as House advances reconciliation path with payroll and agency cash crunch looming.
Last 24 hours
Coast Guard says ~75-day DHS funding lapse left over $300m unpaid obligations, ~6,000 utility bills unpaid, and funding to pay personnel runs out May 1 with first missed paychecks expected May 15.
FEMA’s Disaster Relief Fund fell below its $3b trigger, entering ‘Imminent Needs Funding’ that prioritizes life-safety response while delaying reimbursements and recovery projects; shutdown payroll draws are estimated at $300–$400m per month.
House passed a procedural budget resolution (215–211 / 214–212–1) to open reconciliation for roughly $70b–$75b in DHS immigration enforcement spending; a separate DHS/TSA funding vote is expected Thursday as temporary payroll measures fade.
Our view
The shutdown remains a growing operational and service-delivery constraint, but policymakers prioritize short-term payroll continuity ahead of mid-May deadlines. Monitor the expected Thursday DHS/TSA funding vote and any action that replenishes FEMA’s DRF above the $3B threshold before June 1.
What could change our view
Congress fails to extend payroll authority, forcing missed DHS pay and wider disruptions.
Major storm before DRF replenishment strains FEMA capacity and pauses more reimbursements.
Tickers: $SPY, $MUB, $JETS
Macro & Policy Digest
Hormuz blockade and escalating strike planning keep crude risk premium elevated as demand destruction signs emerge amid extreme intraday volatility.
Last 24 hours
Brent briefly traded near $126/bbl before reversing (prints cited from ~$115.81 to ~$123.50) while WTI hovered near $106, after reports CENTCOM would brief Trump on possible Iran strikes and Hormuz flows near 4% of normal.
Trump said the U.S. naval blockade would stay until a nuclear deal; Iran would not reopen without lifting it, and Brent settled near $118 (+6%) with WTI around $106.88 (+~7%) as shipping was described close to a standstill.
Market reaction
Crude repriced sharply higher with Brent up about 6% to settle near $118 and WTI nearly 7% to around $106.88, while a later spike above $126 reversed. The oil surge was linked to a sell-off in US long-duration rates, with 30-year yields hitting ~5.0%, and US gasoline cited at $4.23/gal.
Our view
Crude remains highly volatile but supported by a persistent geopolitical supply premium while Hormuz disruption and blockade policy persist. Watch for any change in U.S. blockade conditions or confirmation of military action plans, alongside evidence of demand destruction flagged by lower April consumption versus February.
What could change our view
Unexpected reopening of Hormuz or blockade removal compresses the crude risk premium.
Sustained demand destruction overwhelms supply tightness and drives crude lower.
Tickers: $USO, $CL=F
Fed holds at 3.50%–3.75% as record dissent exposes guidance fracture while Warsh’s chair nomination advances, raising policy-communication and independence uncertainty.
Last 24 hours
The FOMC held 3.50%–3.75%; an unusually large dissent saw one governor favor a 25 bp cut and three oppose an easing-bias line, as the statement flagged elevated inflation tied to higher global energy prices.
Senate Banking advanced Kevin Warsh for Fed chair 13–11 on a party-line vote; the nomination moves to the full Senate with a floor vote expected the week of May 11, ahead of Powell’s May 15 term end.
Our view
Policy stays on hold near term, with the statement’s “additional adjustments” language used more as optionality than a near-term easing signal amid energy-linked inflation uncertainty and leadership transition noise. Watch the May Senate floor vote on Warsh and any shift in guidance wording/dissents at the next meeting as the clearest catalyst for rate-path repricing.
What could change our view
Guidance pivots decisively toward cuts, reducing the signaling split’s relevance.
Warsh confirmation triggers unexpected changes to Fed independence framing beyond rate setting.
Tickers: $TLT
UAE’s surprise exit from OPEC on May 1 threatens quota cohesion and raises odds of higher exports pressuring crude.
Last 24 hours
UAE said it will leave OPEC effective May 1, challenging Saudi-led quota discipline; reporting flags output near ~3.3 mbd pre-war with >4.0 mbd plausible near term and ~5.0 mbd possible.
Our view
The announcement increases downside skew for crude as traders price weaker OPEC cohesion and a higher UAE supply path outside quota constraints. Next, watch for concrete signals of immediate export increases or compensating Saudi-led cut coordination within OPEC+.
What could change our view
UAE keeps production and exports flat despite leaving OPEC.
Saudi-led OPEC+ restores cohesion with credible coordinated cuts offsetting UAE.
Tickers: $CL=F
White House extends Jones Act waiver from May 18 for 90 days, aiming to ease U.S. fuel pressures from Iran-war supply disruption.
Last 24 hours
The administration said the waiver follows a March 18 60-day measure and has drawn 40+ tankers, boosting eligible coastal shipping capacity by 70%+ and moving over 9 million barrels to U.S. ports faster.
Our view
We expect the extended waiver to modestly reduce coastal freight frictions and time-to-delivery, helping narrow regional refined-product dislocations more than it shifts national crude balance. Monitor whether gasoline/distillate spreads and pump prices respond; lack of improvement raises odds the policy is curtailed or politicized.
What could change our view
Political backlash or legal pushback ends the waiver before May 18 start.
Waiver fails to narrow regional spreads, undermining confidence in stated supply impact.
Tickers: $CL=F
Kone’s €29.4B cash-and-share TK Elevator deal resets the global elevator competitive map and puts peer valuations in play pending antitrust.
Last 24 hours
Kone agreed to acquire Germany’s TK Elevator in a €29.4B cash-and-share transaction, targeting €700M annual run-rate synergies, with shareholder support cited at just over 40% of shares and ~74.3% of votes.
Our view
This deal elevates strategic pressure on listed elevator peers, but the tradable impact stays gated by regulatory timing and remedy risk. Monitor antitrust review and any required divestitures or behavioral commitments, which will determine closing probability and the competitive intensity implied by the new scale leader.
What could change our view
Antitrust blocks the transaction or forces heavy remedies that blunt expected synergies.
Competitive response triggers pricing pressure, undermining the margin upside implied by scale.
Tickers: $OTIS
Eurozone flash CPI re-accelerates on energy while Q1 growth slows, sharpening stagflation debate into an ECB decision and EUR rate volatility.
Last 24 hours
Eurostat’s flash April CPI rose to 3.0% y/y (from 2.6%) as energy inflation jumped to 10.9%, while core eased to 2.2% and Q1 GDP slowed to 0.1% q/q.
Our view
The ECB holds the 2.0% benchmark rate, with communication leaning cautious as energy-driven headline inflation offsets soft growth. Watch whether Hormuz-related supply constraints keep headline CPI elevated and if core stops cooling, which would raise odds of tighter financial conditions despite slowing activity.
What could change our view
Energy shock fades quickly, pulling headline inflation back toward target.
Core inflation re-accelerates, forcing ECB to consider hikes amid weak GDP.
Tickers: $FXE
Company Events
Healthcare earnings highlight GLP-1 strength at Lilly and steadier oncology growth at Merck, with guidance lifts offset by pricing and China pressure.
Last 24 hours
Eli Lilly posted Q1 revenue of $19.80B (+56% YoY) and adj EPS $8.55, lifting 2026 revenue to $82B-$85B and adj EPS to $35.50-$37.00 on Mounjaro $8.66B and Zepbound US $4.16B.
Merck reported Q1 revenue of $16.29B (+5% YoY) with Keytruda $8.03B and Winrevair $525M, narrowing 2026 revenue to $65.8B-$67.0B and raising adj EPS to $5.04-$5.16 despite a $3.62/sh Cidara charge and Gardasil -19% amid China weakness.
Market reaction
LLY was indicated about 5% higher premarket after the beat and 2026 guidance raise.
Our view
The group’s near-term tone stays constructive, led by sustained GLP-1 demand at Lilly while Merck’s underlying oncology drivers support results despite headline noise from one-time acquisition charges. Next watchpoints are GLP-1 realized pricing trends and whether Gardasil’s China-driven softness stabilizes.
What could change our view
Sharper US GLP-1 realized price declines or volume deceleration undermines guidance durability.
Prolonged Gardasil China disruption or weaker Keytruda momentum shifts sentiment to downside.
Tickers: $LLY, $MRK
Autos open with a split tape as Ford lifts 2026 EBIT outlook on tariff refund accounting while Volkswagen flags deeper margin pressure.
Last 24 hours
Ford posted Q1 revenue $43.3B (+6% y/y) and adjusted EBIT $3.5B, including a $1.3B tariff-refund benefit tied to a Supreme Court ruling; cash receipt timing remains uncertain.
Volkswagen reported Q1 operating profit €2.5B (−14.3% y/y) versus ~€4B expected and said higher US tariffs and China competition are squeezing profitability, with management warning additional cost cuts may be needed.
Our view
Near term, expect continued dispersion within global autos: US names with clearer earnings bridges can stabilize, while European OEMs stay under pressure from tariffs and competitive intensity. For Ford, the key monitor is conversion of the booked tariff refund into cash; for Volkswagen, watch whether incremental restructuring actions or charges are signaled alongside margin targets.
What could change our view
Ford’s tariff refund is delayed or reversed, undermining cash flow guidance.
Volkswagen cost actions fail to offset tariff and competition pressures, worsening profitability.
Tickers: $F, $VWAGY
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Informational only; not investment advice. Sources deemed reliable.