A peace wish and chips

A Reuters Open Interest newsletter

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

Hopes that a U.S.-Iran peace deal might be imminent propelled global stocks to new highs and sent oil prices tumbling on Wednesday, with the U.S. AI frenzy intensifying on strong earnings and reports of mega spending commitments in the sector. 

In my column today, I look at the remarkable resilience of emerging markets to the global energy shock - EM stocks are at a record high, and bond spreads are the tightest in over a decade. If a peace deal in the Middle East is reached, this may well continue. But if not? 

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

It's vol over

The VIX volatility index, Wall Street's so-called 'fear index', on Wednesday nudged its lowest level in over three months. It is below where it was when the Iran war started in late February, and significantly down from its war peak. 

It's always a conundrum - does lower implied volatility lead to higher stock prices, or vice versa? It doesn't really matter. The fact is Wall Street is surging to fresh high after fresh high, and investors see little sense in buying protection in the options market. Whether you agree with it or not, this market appears to have momentum. 

* The $1 trillion club

Samsung joined the $1 trillion market cap club on Wednesday, its shares soaring 14% as part of a global AI chip surge that must be taking even tech bulls by surprise. Samsung becomes the second Asian company after TSMC with a trillion-dollar value.

The latest whoosh across the industry follows a report that Anthropic will spend $200 billion on Google's cloud and chips. Some estimates suggest around half of the $2 trillion cloud order book at Google, Microsoft, Oracle, and Amazon is from two companies - Anthropic and OpenAI. Remember 'too big to fail'? 

* Suffer-a-jet

U.S. airlines spent over $5 billion on jet fuel in March, up $1.8 billion or 56% from what they spent the month before. If prices don't come back down soon, could another low-cost carrier go bust like Spirit Airlines did last month? 

The collective hit to airlines' bottom line around the world is in the billions of dollars, and thousands of flights have already been canceled. It's not just higher prices either - there could be physical shortages if key supply routes aren't re-opened soon. 

Emerging market stocks are smashing record highs and bond spreads are the tightest in years - despite the biggest energy supply shock in history. The question is how long this can last.      

Emerging markets sold off strongly in March but that rout has since given way to an even stronger rally, revealing a resilience many observers probably never thought possible. The MSCI global emerging market index and MSCI Asia ex-Japan index both climbed 3% to new record highs on Wednesday, meaning they are each more than 20% above their March 31 lows.     

Over in fixed income, yields are rising on government debt, but the JPMorgan EMBI spread between emerging-market dollar debt and U.S. Treasuries is back to pre-Iran war levels and close to the tightest levels since 2013.  Uncertainty remains unusually high, but EM investors are unusually calm. What gives?