Morning Report | Oil war premium stays elevated; AI ties loosen
$USO Brent >$111 war premium · $XLE Iran VLCC seizure risk · $FXY BOJ hawkish hold firms yen · $MSFT OpenAI resets cloud exclusivity terms · $ITA Record 2025 outlays lift defense demand
Market Pulse
AI
5 events
OpenAI resets Microsoft economics and cloud exclusivity as trial risk rises and device and finance partnerships widen AI’s competitive front.
Last 24 hours
OpenAI and Microsoft amended terms: OpenAI’s revenue-share payments continue through 2030 but are now capped in total dollars, and OpenAI can sell products across any cloud while Azure remains “primary” and first-ship; Microsoft retains a model IP license through 2032 that is no longer exclusive and will not pay OpenAI revenue share on Azure model access purchases.
CNBC cited analyst Ming-Chi Kuo reporting Qualcomm and OpenAI (with MediaTek; Luxshare to co-design/build) on a smartphone AI chip with mass production expected in 2028; Customers Bank disclosed a multiyear OpenAI partnership with embedded engineers targeting faster lending/onboarding and an efficiency ratio move from ~49% to low-40s starting 2027; a nine-person jury was seated in Musk v. OpenAI with opening arguments Tuesday and liability phase expected to end by May 21; Ineffable Intelligence announced a $1.1B seed round at a $5.1B valuation with Nvidia and Google participating.
Market reaction
Qualcomm shares rose as much as ~7% early Monday on the reported OpenAI smartphone-chip partnership.
Our view
The AI trade remains a competitive-dynamics story with distribution loosening beyond Azure but no near-term demand reset implied in these updates. Monitor confirmation and monetization details around the reported Qualcomm/MediaTek device effort and whether the Musk v. OpenAI case drives any court-directed structural remedy affecting commercial agreements.
What could change our view
Court-ordered remedies that unwind restructuring or force leadership changes at OpenAI.
Qualcomm/OpenAI device partnership fails to be validated or slips materially beyond the stated timeline.
Tickers: $MSFT, $AMZN, $GOOGL, $QQQ, $SMH, $QCOM, $AAPL, $SOXX, $CUBI, $KRE, $XLF, $NVDA, $GOOG
U.S.-Iran War
3 events
Hormuz reopening proposal meets U.S. skepticism, keeping war premium elevated as Brent holds above $111 and jet fuel tightness spreads to airlines.
Last 24 hours
The White House confirmed it discussed an Iranian proposal to reopen the Strait of Hormuz if the U.S. lifts its blockade and hostilities end; Rubio called it “better” but stressed the nuclear issue, while Leavitt signaled it is not being actively considered yet.
Crude rose as talks faltered again (Brent Jun $108.23, WTI Jun $96.37), and Chevron’s CEO warned jet fuel inventories are tightening quickly in Europe/Asia with U.S. jet fuel cited at ~$4.19/gal; United plans ~5% capacity cuts and Delta trimmed growth by ~3.5pp.
Market reaction
Oil prices extended higher on negotiation setbacks and disruption risk: Brent moved above ~$111 in the latest update after Brent Jun settled at $108.23 (+~3%) and WTI Jun at $96.37 (+~2%), with WTI later cited around ~$98.50; jet fuel was cited at ~$4.19/gal in the U.S. and $184.63/bbl globally (down 6.7% WoW).
Our view
De-escalation remains slow and uncertain, sustaining an elevated oil and refined-products risk premium and keeping airlines facing margin pressure and further schedule adjustments. Monitor for a concrete shift in U.S. posture toward the Hormuz proposal and any credible evidence of restored flows and stabilizing jet fuel inventories.
What could change our view
Rapid ceasefire and accepted Hormuz reopening terms compress crude and jet fuel risk premia.
Disruption persists through end-June, raising tail risk toward Citi’s $150 Brent scenario.
Tickers: $USO, $XLE, $CVX, $UAL, $DAL, $AAL, $JETS,
Macro & Policy Digest
U.S. seizure of a VLCC with ~1.9m barrels of Iranian crude raises enforcement risk around Malaysia’s EOPL hub for ship‑to‑ship transfers.
Last 24 hours
U.S. authorities boarded and seized the tanker MT Tifani (IMO 9273337) in the Indian Ocean; officials said it carried ~1.9 million barrels of Iranian crude.
Reporting highlights AIS “dark” periods and ship‑to‑ship transfer patterns around Malaysia’s EOPL anchorage, where UANI data show transfers rising to 679 in 2025 and at least 250 tracked Jan–Apr 21 this year.
Our view
Enforcement actions create intermittent friction in Iran-to-Asia logistics, supporting a modest risk premium for crude and oil equities without sustained supply loss. Monitor whether seizures and AIS/STS scrutiny at EOPL translate into fewer transfers or rerouted volumes toward China.
What could change our view
Broader crackdown that meaningfully curtails STS activity, removing Iran barrels from seaborne supply.
Evasion adapts quickly with alternative hubs, leaving flows largely uninterrupted and premiums fade.
Tickers: $CL=F, $BZ=F, $XLE, $OIH
BOJ’s hawkish hold and upgraded inflation outlook keep hike odds alive, nudging JGB yields higher and putting a floor under yen.
Last 24 hours
BOJ held the policy rate at 0.75% on a 6–3 vote; three board members dissented and proposed hiking to 1.00%.
BOJ lifted its core inflation outlook to 2.8% (from 1.9%) and cut FY2026 real GDP growth to 0.5% (from 1.0%).
Market reaction
10-year JGB yields were ~2.468% after the decision (after recently reaching 2.496%), while USD/JPY was around 159.12, consistent with limited yen weakness.
Our view
BOJ maintains a tightening bias, with a near-term hike conditional on renewed FX weakness or energy-driven inflation pressure, keeping JGB yields supported and limiting USD/JPY upside. Monitor crude-sensitive inflation dynamics and whether USD/JPY approaches the cited ~162 line.
What could change our view
Core inflation momentum fades and growth weakness dominates, reducing near-term hike probability.
USD/JPY stabilizes well below 162 and crude-driven price risks ease.
Tickers: $EWJ, $FXY, $DX=F, $ZB=F
SIPRI flags record 2025 military outlays as Europe accelerates rearmament, reinforcing multi-year demand visibility for defense primes and supply chains.
Last 24 hours
SIPRI said global military spending rose for an 11th year to $2.89T in 2025 (+2.9% YoY), with Europe up 14% to $864B; Germany rose 24% to $114B (2.3% of GDP) and Spain jumped 50% to $40.2B.
The U.S. stayed the largest spender at $954B but fell 7.5% amid no new Ukraine assistance approvals, while SIPRI flagged a Pentagon FY2027 request near $1.5T; Asia/Oceania rose 8.1% to $681B and China increased 7.4% to about $336B, alongside policy shifts like Japan easing lethal export restrictions and an EU plan to mobilize up to €800B by 2030.
Our view
We stay constructive on the defense complex as European rearmament and broader multi-year spending trends support backlog and budgeting durability. Watch whether the cited FY2027 Pentagon request and European funding plans translate into orders amid shifting Ukraine assistance approvals.
What could change our view
U.S. budget follow-through fades and FY2027 request fails to materialize.
European fiscal or political pushback derails moves above 2% of GDP.
Tickers: $ITA, $XAR, $LMT, $NOC, $GD, $RTX
Company Events
Gene-editing momentum builds as Intellia posts pivotal in vivo CRISPR efficacy in HAE and Crinetics wins EU approval for acromegaly oral therapy.
Last 24 hours
Intellia said its one-time in vivo CRISPR therapy met a pivotal HAE endpoint, cutting attacks 87% versus placebo and starting a rolling FDA submission.
Crinetics said the European Commission approved PALSONIFY for adult acromegaly across EU/EEA, with initial launches planned for Germany and Austria.
Our view
These updates should keep biotech tone constructive as late-stage clinical and regulatory de-risking accumulates in differentiated modalities and commercial-stage assets. Next, monitor Intellia’s BLA module cadence, CMC readiness and safety-monitoring label contours, alongside Crinetics’ EU pricing/reimbursement progress ahead of its initial launches.
What could change our view
NTLA FDA review slows on CMC or safety-monitoring language around hepatotoxicity sensitivity.
CRNX EU pricing/reimbursement setbacks delay planned launches and pressure early uptake expectations.
Tickers: $NTLA, $XBI, $IBB, $CRSP, $VRTX, $CRNX
Airlines face renewed policy and deal headlines as budget carriers pursue fuel-linked relief and United ends its American merger outreach.
Last 24 hours
WSJ reports value/budget airlines are seeking about $2.5B in federal assistance with equity-linked warrants, tied to 2026 jet fuel averaging above $4.00/gal; talks are expected to continue in coming days after meetings with Transportation Secretary Sean Duffy and FAA Administrator Bryan Bedford.
United CEO Scott Kirby said he approached American about a merger but American declined, prompting United to end pursuit; President Donald Trump said last week he opposed the idea, and American CEO Robert Isom called a tie-up anti-competitive.
Our view
Mega-merger optionality is effectively shelved near-term, keeping the sector centered on organic competition while fuel-cost pressure drives policy uncertainty for budget carriers. The next swing factor is whether any federal relief framework advances (scope, warrants/equity terms), particularly around a Spirit-specific proposal.
What could change our view
Fast-tracked, sizable federal relief with light warrant terms materially improves budget-carrier outlook.
Political or regulatory stance shifts reopen large-airline consolidation probabilities sooner than expected.
Tickers: $ULCC, $SAVE, $ALGT, $SNCY, $JETS, $CVX, $CL=F, $HO=F, $UAL, $AAL
Early earnings split consumer tape as Domino’s flags promo-driven restaurant pressure while Coca-Cola delivers a beat and lifts comparable EPS guidance.
Last 24 hours
Domino’s posted U.S. same-store sales growth of +0.9% vs +2.3% expected and cut FY U.S. same-store outlook to low-single digits from +3%.
Coca-Cola beat on Q1 sales and EPS, raised FY comparable EPS growth to 8%–9% from 7%–8%, and reiterated 4%–5% organic revenue growth.
Market reaction
Domino’s fell more than 8% on the day after the U.S. comps miss and guidance reset, while Coca-Cola was indicated about +1% premarket on the beat and EPS outlook raise.
Our view
Expect a continued split between pressured discretionary dining (promotional intensity and softer sentiment) and steadier staples where operating leverage can support EPS. Key monitor is whether upcoming restaurant prints validate persistent discounting versus a stabilization in U.S. traffic and comps.
What could change our view
Restaurant peers print resilient comps and ease promo tone, reversing the discounting narrative.
Staples pricing/volume weakens, undermining the perceived earnings durability signaled by guidance raises.
Tickers: $DPZ, $XLY, $SBUX, $CMG, $YUM, $PZZA, $KO, $PEP, $MNST, $XLP
Shell’s $16.4B ARC Resources deal shifts Energy M&A focus to Canadian Montney gas, with mostly stock consideration and 2H26 close target.
Last 24 hours
Shell signed a definitive agreement to acquire ARC Resources for ~US$16.4B EV, adding ~370,000 boe/d, ~2B boe 2P reserves, and expanding its Montney acreage position.
ARC holders get CAD 8.20 cash plus 0.40247 Shell shares (implied CAD 32.80, ~20% premium to 30-day VWAP); Shell expects ~US$3.4B cash outlay, ~228M shares issued, and targets double-digit returns with FCF/share uplift from 2027.
Our view
The transaction closes around the targeted 2H26 window and, if execution matches guidance, supports Shell’s 2027 free-cash-flow-per-share uplift narrative. The key swing factor to monitor is the approvals path and whether per-share metrics can absorb the ~228M-share issuance without returns slipping below the stated “double-digit” target.
What could change our view
Regulatory or shareholder approvals delay, impose remedies, or prevent a 2H26 close.
Returns and per-share free cash flow fall short after ~228M-share issuance.
Tickers: $SHEL, $XLE, $CL=F, $NG=F
China orders Meta to unwind the $2B Manus deal, spotlighting tighter foreign-investment security reviews and execution uncertainty around AI data and IP separation.
Last 24 hours
China’s NDRC directed Meta and Manus to withdraw/unwind Meta’s $2B acquisition, citing prohibitions on foreign investment under applicable laws and regulations.
Reporting characterized the move as a first apparent use of China’s late-2020 foreign investment security review measures, with unwind mechanics (data/IP reversal, asset separation, enforceability) unclear after months of probing.
Our view
This becomes a protracted regulatory unwind with meaningful process and execution uncertainty, raising deal and earnings headline risk for Meta and reinforcing cross-border AI policy friction. The key monitor is whether authorities specify workable unwind mechanics—especially data/IP “reversal”—or escalate to broader scrutiny of similarly structured transactions.
What could change our view
Authorities provide a clear, enforceable unwind path that materially reduces execution uncertainty.
China broadens security review actions to additional “Singapore-washed” AI structures, worsening sentiment.
Tickers: $META, $QQQ, $KWEB
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