Iran Draws a Line and Puts Markets on Notice Clash in Gulf sends Brent, inflation expectations to landmark highs.
(…) Analysts tended to dismiss Iran’s retaliation as perfunctory, but the incident makes clear that the month-old ceasefire is fraying. As Tina Fordham of Fordham Global Foresight put it:
By launching renewed missile attacks today, Iran is signalling that they still have the capacity to inflict pain and won’t be forced into capitulation. The US increasingly faces a choice between a long war it doesn’t want to fight, or a bad, embarrassing deal.
This feeds into the oil price. Futures now put Brent crude for the end of this year above $90. That’s its highest since the conflict started, taking out the previous peak set when Iran attacked a liquefied natural gas facility in Qatar:
Any escalation that permanently removed regional oil infrastructure would be deadly for the market. Ditto any sign that the impasse will continue. Not coincidentally, prediction markets now give less than 50-50 odds that traffic will be back to normal by the end of June. Two weeks ago, this was a 90% shot. (…)
With midterm elections due, that puts pressure on the US to make a deal. The logic points to a resolution like the nuclear agreement done by President Barack Obama (known as the JCPOA) from which Trump pointedly withdrew in 2018. (…)
If there is anything positive, it’s that December oil prices couldn’t be so high unless markets were confident that the world economy would survive intact, and keep demanding oil. Marko Papic of BCA Research argues:
The alarmist view has been proven incorrect. We can muddle through. There’s no recession around the corner. And that unfortunately means there’s no pressure on either side to come to a deal.
That economic optimism stems from AI…
AI boom poised to be ‘massively disinflationary’, Northern Trust says
(…) Mike Hunstad said it was clear that “many companies are talking about efficiency gains from AI”.
“If even a portion of those actually materialise on an economy-wide basis, it could be one of the biggest positive supply shocks we’ve ever seen,” he told the FT, referring to dramatic increases in goods and services that drive prices lower. “You can’t ignore that.” (…)
Donald Trump’s Fed chair nominee Kevin Warsh has predicted that an AI boom will be “the most productivity-enhancing wave of our lifetimes — past, present and future”.
Warsh has argued that AI advances will allow the Fed to cut rates without raising inflation, and has compared the situation to the productivity boom in the 1990s, when Alan Greenspan helmed the central bank.
Other Fed policymakers dispute the idea that the AI boom creates space for lower borrowing costs. Officials such as Fed vice-chair Philip Jefferson note that soaring investment in AI infrastructure, such as data centres, boosts demand immediately — and risks raising prices, while the effects on productivity will take longer to play out. (…)
Yesterday, I posted this BofA chart showing the decline in S&P 500 employees in 2025.
I also posted Bain’s findings that CFOs, witnessing in real time how AI investments help across their companies, are now using AI for their own benefits.
The capital commitment to AI is real and growing, and finance is catching up. A recent Bain & Company survey of senior finance executives shows 56% are increasing enterprise-wide AI investment by more than 15% this year. Over the next two years, 83% of CFOs plan AI budget increases above 15%, with 42% expecting increases above 30%. (…)
This is not incremental experimentation; it’s a serious commitment to AI in the operations of a function known for fiscal discipline. (…)
When CFOs describe their biggest AI win, speed and cycle-time reduction leads at 48%, ahead of headcount or cost savings at 34%. That ordering matters. Tighter close cycles, streamlined reconciliations, and early variance insight improve a company’s ability to detect exceptions, correct course, and redeploy capital faster. (…)
A finance function that compresses the cycle from market signal to management decision from weeks to days is better positioned to help the business move faster than its competitors. (…)
Among all CFOs, 31% rate AI outcomes as strongly positive. Among those who have scaled any type of AI (machine learning, GenAI, or agentic) into full production, that figure rises to 41%, compared with 25% among those still in pilot mode.
Among top-quartile organizations by AI maturity, it exceeds 60%.
Goldman Sachs observes “large impacts on labor productivity in the limited areas where generative AI has been deployed. Academic studies imply a 23% average uplift to productivity, while company anecdotes imply slightly larger efficiency gains of around 33%. Industries with higher AI adoption rates are now showing a slight acceleration in productivity growth over the past year in official US data.”
SemiAnalysis (SA) sees the “flood of demand” from concrete AI ROI:
Over just the past few months, agentic AI has crossed a real inflection point, driving a step-change in the value of tokens while software and hardware improvements have sharply reduced the cost of generating them.
This flood of demand is driven by end users enjoying a huge return on investment (ROI) from consuming tokens, and this demand growth is arguably only in its early innings. (…)
End users are enjoying a productivity bonanza – tasks that used to take tens of person-hours costing thousands of dollars can now be accomplished in minutes with a just a few dollars’ worth of tokens. This huge surge in revenue and margins is because the value of tokens being created is dramatically improving businesses. For example, SemiAnalysis has reached as high as $10.95 million dollar annual spend rate on Anthropic Claude tokens, but the value we derive allows us to outcompete all our competitors and gain market share. (…)
The world changed in December 2025, when Agentic AI began to really work. SemiAnalysis has written and talked extensively about our Claude Code usage, but it is important to emphasize that agentic AI is no longer limited to just coding. Our analysts are using agents every day to convert excel models into dashboards, create charts for all our notes, build financial models and analyze company earnings, and much more.
These are all tasks that either 1) we simply wouldn’t have been able to do before or 2) would’ve previously taken our junior analysts many hours, taking them away from far more value added tasks. (…)
Annualized token spend at SemiAnalysis is already ~30% of employee compensation and we’re consuming just under 5B tokens per month per employee (…). It’s obvious that this is still just the beginning, and that all white-collar enterprises will soon embrace agentic AI.
Anthropic’s annualized revenue run rate has exploded from $9B last December to potentially $44B+ YTD as agentic AI took off. Truly phenomenal.
SemiAnalysis provides proof that corporate users are now seeing real value from AI agents.
Anthropic’s most recent Opus version is being “priced 6x higher than regular Opus, and Mythos being announced at $25/$125 (5x regular Opus pricing). (…) yet the most AI-pilled businesses are still more than happy to pay the increased prices because the productivity gains outweigh the cost. If Anthropic let us pay $150/$750 for Mythos fast, we would.”
BTW, SA also notes that as demand continues to accelerate,
compute supply remains structurally constrained. Upstream bottlenecks in memory and leading-edge wafers continue to limit availability, with N3 utilization expected to exceed 100% in the second half of 2026 and DRAM fabs already running above 90% utilization. There is no meaningful relief in sight. (…)
Demand for Nvidia systems remains extremely strong across all tiers, with buyers willing to lock in long-term contracts and accept higher pricing to secure capacity. (…)
The market has structurally shifted, with demand scaling faster and more persistently than supply can respond.
At Goldman Sachs’ March 30 Shoptalk 2026:
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Brands and retailers noted that consumers are increasingly beginning their shopping journey inside AI platforms rather than on brand websites or search engines, with adoption accelerating rapidly over the past several months.
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GAP stated it is seeing stronger purchase intent and higher conversion from customers arriving through agentic channels, and described itself as explicitly not in a wait-and-see mode.
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Retailers and brands are applying AI across every function of the business.
Another BTW from SA is that “Neocloud GPU rental pricing is surging as well, up with 1-year H100 rental contract prices up 40% from the bottom in October 2025.” Nvidia’s H100 was launched in March 2022. So much for rapidly depreciating chip values!
Back to the overall economy, David Rosenberg’s analysis of the recent GDP data reveals that “net of AI capex, health care, and financial services (which collectively expanded at a +11% annual rate), the other 72% share of the economy contracted at a -1.1% annualized rate after a -1.8% falloff in Q4. Nearly three-quarters of the U.S. economy is in recession.”
In fact, real spending on cyclically sensitive durable goods, which strongly carried the economy during and after the pandemic, has been flat since mid-2025 …
and up only 1.0% YoY in Q1’26 after +0.1% in Q4’25.
Interestingly, the sharp drop in the savings rate, from 5.5% in August 2025 to 3.6% in March 2026, was not used to sustain growth in durables consumption but rather in non-durables and services.
Americans’ remarkable resiliency so far came from significant dissaving to offset a rapidly slowing disposable income stream, from +3.5% YoY in Q1’24 to +2.0% in Q1’25 to +1.1% in Q1’26 (+0.4% in March).
Rosie calculated that “had the household sector been constrained to spending its real after-tax earnings, the trend would be flat — not only that, but it would have contracted at a -2.6% annual rate over the January-March period. How is that for a solid economy?”
This is through March, the first month of the war when PCE inflation shot up from 2.8% YoY in January-February to 3.5%.
Andre Schulten, Procter & Gamble CFO, said last week that “the consumer has been hit with cumulative inflation beyond anything that they’ve seen in recent history”. P&G, Colgate-Palmolive and Kimberly-Clark told analysts that soaring oil prices would collectively cost them nearly $1.5B.
The FT today posted these charts showing how rising costs are hitting companies.
We will soon find out if companies are successfully passing on these costs, maintaining margins, but at the possible cost to sales given that consumers have already brought their savings down.
Jonathan Feeney, of Optimal Advisory, a consultancy, said that the costs of the Iran war had on average cut about 2 percentage points of gross profit margin from consumer groups, which they would eventually need to recoup by imposing higher prices on consumers if conditions persisted.
“They can’t sit and quietly rub their lucky rabbit’s foot and hope things change in the second half of the year,” he said.
- The oil price crunch is looming The longer the Strait of Hormuz blockade continues, the more likely a crisis-like adjustment in rich economies becomes
(…) For Iran, the prospect that a naval blockade will force its government into serious negotiations is dim. Technically, the government still has control over its oil and gas production, including the ability to scale it up or down. Even if the blockade cuts into revenues and damages production capacity in the long term, why would economic misery sway a regime with a long record of prioritising dogma over wellbeing, and with its back to the wall? At a minimum, that will take time.
For the rest of the world, time is running out. In volume terms, the de facto blockade of the Strait of Hormuz by Iran is the largest disruption in the history of global oil markets.
Many observers wonder why markets appear surprisingly unfazed: oil prices are up but not as much as after Russia’s invasion of Ukraine. Stock markets, in particular, are strong.
The lack of market panic is not irrational. Inventories and expectations tell the story: oil markets were well supplied when the attacks on Iran started, with supply exceeding consumption and inventories high. Financial markets signal expectations that the war and disruption will stop before inventories show the strain. While the spot price for oil has escalated, futures prices for delivery a few months from now are lower and falling. But what if the two blockades continue? (…)
One argument often marshalled to explain why markets are sanguine is that oil is no longer as important as it used to be. (…)
Unfortunately, the improvements in oil intensity are a double-edged sword. Oil consumption today is more concentrated in high-value uses and in areas where there is no substitute, like road or air freight and maritime shipping. These are load-bearing economic activities, less price sensitive than discretionary or consumption-oriented drivers of growth. Once disrupted they are likely to cascade through the economy.
Traditionally, oil price increases translate into an economic recession via inflation and tighter monetary policies; or by affecting growth directly, through diminished purchasing power or by triggering fiscal and balance of payments constraints. It is mostly the average cost of oil that matters to these channels.
Today, price increases will hit the high-value use of oil which cannot be substituted. The cost then is the loss of economic activity and value creation, caused by shutting down a particular node. Oil concentrated in high-value uses is a little bit like rare earths, tiny compared with the size of GDP but essential for much of it.
If the size of a supply disruption requires demand to come down and prices surge to the required level, the response will be sudden with a potentially unforeseen and disproportionate impact on economic activity.
Modern, wealthy and service-based economies do not have an escape hatch. With transport disruptions, their supply chains become vulnerable and disruptions unpredictable.
The longer the two blockades continue, the more likely a crisis-like adjustment in the world’s leading economies, rather than the slow-growth recession we have been used to. A theocracy like Iran can suppress economic pain. In a democracy, deliberately gambling away economic stability eventually means paying a political price.
- NY Fed president John Williams: the Middle East conflict has added “significant and unpredictable risks.”
- Europe Is Facing Stagflationary Shock, EU’s Dombrovskis Says
How America’s retail army came to rule the stock market
(…) The share of US households that own stocks has surged this decade to nearly 60 per cent, the highest proportion in any country. Americans are all in on the market, holding more wealth in stocks than in their homes for the first time. And retail is now the most active class of traders as well.
Retail’s share of daily trading in US stocks doubled in the past 15 years to 36 per cent, surpassing that of big banks or hedge funds, and making them the market price-setters. Last year US retail trading topped $5tn, exceeding the pandemic high, only this time Americans weren’t stuck at home or flush with savings.
They were chasing returns and the shock of the Iran war has barely slowed them down. So far in 2026 they have remained net buyers on most days. (…)
They still skew increasingly young, male and overeager. They chase returns when markets are rising fast and are classic “momentum” investors. So their habits have found fertile ground in the current momentum bull run (…).
Nearly a third of the stocks held by retail are also held by “aggressive” institutions like hedge funds and growth-focused mutual funds — a record overlap. Lately, some institutions have even begun offering mutual funds that track stocks favoured by the retail class. (…)
Tech platforms and products favoured by retail investors, such as exchange traded funds, are growing explosively to meet demand. ETFs now outnumber publicly traded stocks in the US (5,000 to around 4,000) and more than half of them launched in just the last three years. Many of the newer ETFs are offering amateurs first-time access to risky options once reserved for pros, such as leveraged bets on single stocks. Over the past decade, the assets managed by leveraged ETFs rose sevenfold to $140bn. (…)