Key global financial headlines from overnight and this morning include:
1. Trump: U.S. Desires Open and Free Passage Through the Strait of Hormuz 2. Five Nations Including Saudi Arabia and UAE Urge Commercial Vessels to Avoid Iranian-Designated Routes in the Strait of Hormuz 3. The Information: OpenAI's First-Quarter Revenue Approximately $5.7 Billion 4. IBM Secures U.S. Government Funding, Commits $2 Billion for Quantum Computing Chip Project 5. Richmond Fed President Warns Frequent Supply Shocks Test Anchored Inflation Expectations 6. Pimco CIO: Fed Will Have to Act if Inflation Expectations Continue Rising
Trump: U.S. Desires Open and Free Passage Through the Strait of Hormuz President Donald Trump stated that the United States seeks open access to the Strait of Hormuz without the imposition of tolls. Speaking to reporters at the White House, Trump emphasized, "We want it open, we want it free, we don't want tolls." Regarding efforts to reach an agreement with Iran, Trump added, "We're in negotiations right now, we'll see what happens." He also noted that if the U.S. were to obtain enriched uranium from Iran, it might be destroyed.
Saudi Arabia, UAE Among Five Nations Urging Commercial Vessels to Avoid Iranian-Designated Routes in the Strait of Hormuz Five Middle Eastern nations have formally rejected Iran's establishment of the Persian Gulf Strait Authority (PGSA) to control transit through the Strait of Hormuz. In a letter to the global shipping regulator distributed earlier this week by the International Maritime Organization, Bahrain, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates stated that commercial vessels should not engage with the PGSA or use Iranian-designated routes to traverse the waterway. Iran announced updated procedures in early May, requiring shipowners to declare via email to the PGSA. Since U.S. and Israeli airstrikes on Iran in late February, the waterway has been largely blocked, though a few vessels have transited using routes approved by Tehran. The letter asserted, "Iran's so-called routes should be seen as an attempt to control traffic through the Strait by forcing vessels into its territorial sea lanes, potentially to levy tolls for profit. Any understanding or recognition of Iran's proposed routes and the PGSA as an alternative would set a dangerous precedent."
The Information: OpenAI's First-Quarter Revenue Approximately $5.7 Billion Citing two unnamed sources familiar with the matter, The Information reported that OpenAI's revenue for the first quarter was approximately $5.7 billion. The report attributed the quarterly revenue growth to OpenAI's coding assistant Codex, increased enterprise sales, and advertising tests for ChatGPT. It was also noted that while OpenAI's outlook for the second quarter is not yet known, improvements in its core products are likely to drive further revenue growth.
IBM Secures U.S. Government Funding, Commits $2 Billion for Quantum Computing Chip Project To bolster U.S. leadership in quantum technology, the Trump administration has agreed to provide $1 billion in funding to IBM for the construction of a quantum computing chip manufacturing facility. In a statement on Thursday, IBM announced it will also invest $1 billion in a quantum chip production company named Anderon. IBM's stock rose as much as 10% during Thursday's trading session. Shares of other companies receiving funding also saw significant gains. GlobalFoundries, a semiconductor firm developing chips for quantum computing, surged up to 14%. D-Wave Quantum jumped 29%, Rigetti Computing climbed 28%, and Infleqtion soared as much as 44%. Governments worldwide are increasingly providing financing for quantum computing. This early-stage technology is believed by researchers to hold potential for new capabilities in areas such as drug discovery and computational encryption standards. Although quantum computers are still primarily used for research, their potential capabilities, if realized, could pose national security threats, such as breaking systems that protect banking and government data.
Richmond Fed President Warns Frequent Supply Shocks Test Anchored Inflation Expectations Richmond Federal Reserve President Tom Barkin stated that the ability of businesses and consumers to withstand the latest round of supply shocks will determine whether the Federal Reserve can continue to "look through" rising inflation without raising interest rates. "Inflation has been above the 2% target for over five years now. It's worth considering whether the cumulative impact of so many shocks could weaken the anchoring of inflation expectations," Barkin said in prepared remarks for an event in Raleigh, North Carolina, on Thursday. "For me, it depends on how much businesses, consumers, and inflation expectations can absorb." Barkin's comments come as energy price shocks stemming from the war in Iran have shifted Fed officials' stance away from considering near-term rate cuts. A growing number of officials are advocating for signaling that the Fed's next move could be either a rate cut or a hike. The Richmond Fed president expressed increasing concern that the U.S. may have entered a new era of more frequent supply shocks, driven by geopolitical tensions, trade fragmentation, more extreme weather events, and rising government debt. He indicated that, for now, the Fed's monetary policy stance is in a "good place" to address both labor market and inflation risks.
Pimco CIO: Fed Will Have to Act if Inflation Expectations Continue Rising Daniel Ivascyn, Chief Investment Officer of Pimco, stated that if inflation expectations rise further, the Federal Reserve and other major central banks will be compelled to act, even as a surge in global bond yields risks triggering broader financial market turmoil. Following the U.S. strike on Iran in late February, oil prices have risen sharply. A key U.S. Treasury market gauge of inflation expectations, the breakeven inflation rate, recently climbed to its highest level in over three years. This move has triggered a significant sell-off in global bond markets, pushing the yield on the 30-year U.S. Treasury to its highest level since 2007 this week. If longer-term inflation expectations "become more meaningfully unanchored, then you would see policy tightening even if the economy is a bit soft," Ivascyn said in an interview. "That's the pain trade for markets," as rates would rise, increasing pressure on equities and credit markets.
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