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Morning Bid U.S.

A Reuters Open Interest newsletter

What matters in U.S. and global markets today

By Anna Szymanski, Editor-in-Charge, Reuters Open Interest

Markets bristled at the Federal Reserve’s hawkish tilt - but only briefly.

The U.S. central bank began the Kevin Warsh era by keeping interest rates steady at 3.50%-3.75%, as expected, though messaging signalled a tightening bias, which initially pushed up bond yields, spurring a selloff on Wall Street that even Elon Musk's SpaceX couldn't escape.

But global equities shrugged off that news on Thursday morning, as the signing of the memorandum of understanding between the U.S. and Iran sent oil prices tumbling to a three-and-a-half-month low.

I'll get into that and more below.

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Today's Market Minute

The U.S. and Iran released the text of an interim agreement their presidents have signed to end their war on Wednesday, with U.S. President Donald Trump threatening to resume attacks if Tehran failed to honour its commitments.
Fed Chair Kevin Warsh did not submit an interest-rate path projection as part of the central bank's quarterly publication of economic projections on Wednesday, spelling big changes ahead for what's become a key guidepost for investors on monetary policy.
U.S. retail sales increased more than expected in May, with households boosting purchases of motor vehicles even as they paid more for gasoline, but a slowdown is likely as the cushion from larger tax refunds against higher prices diminishes.
Gulf governments have a clear strategic imperative to diversify from the Strait of Hormuz as future closures are now a real and persistent risk, with huge implications for the region at large, argues ROI Energy Columnist Ron Bousso.
The speculative fever that drove copper prices to record highs is still simmering, thanks to the metal's exposure to the energy transition and AI megatrends, writes ROI Metals Columnist Andy Home.

Kevin who? MoU trumps Fed

The S&P 500 and Nasdaq closed down more than 1% on Wednesday, and short-term Treasury yields rose to a 16-month high.

The Fed policy statement and press conference both appeared to signal a hawkish tilt, prompting futures markets to price in a bigger chance of a rate hike as soon as September.

Warsh told reporters that the central bank would "deliver on price stability", while new quarterly projections - which he did not participate in - showed nine of 19 policymakers expected a rate hike by the end of 2026.

President Donald Trump - who sharply criticized former Fed Chair Jerome Powell for not lowering rates - appeared to take this in his stride, saying on Wednesday that he would be guided by what Warsh wants.

As a reminder, Trump did signal in recent weeks that he would provide Warsh with some breathing room.

Meanwhile, markets got a preview of the quieter Fed we're likely to get under Warsh, with a stripped-down Fed statement that dispensed with forward guidance.

Ultimately, the bigger force moving markets today was not what happened in Washington yesterday but what investors expect to happen moving forward in the Middle East.

On Wednesday, the U.S. and Iran released their 14-point memorandum of understanding, which has been signed by President Trump and Iranian President Masoud Pezeshkian.

The MoU includes an immediate end to the war on all fronts, including Lebanon, the full resumption of maritime traffic "with no charge" in the Strait of Hormuz, the lifting of a U.S. blockade of Iranian ports, the waiving of U.S. sanctions on Iran, the unfreezing of its assets and a $300 billion investment fund for the Islamic Republic's post-war reconstruction.

While it's unclear whether the Strait will remain toll-free after the 60-day period ends, energy markets certainly appear to believe that energy shipments will soon be flowing at high levels through the narrow waterway, as Brent crude fell early on Thursday to around $78 per barrel.

This, in turn, appeared to lift investor sentiment on Thursday, with major Asian stock indexes hitting record highs. Wall Street futures are also in the green before the bell.

Finally, turning back to monetary policymakers, the Bank of England is expected to hold rates steady at 3.75% on Thursday as it assesses what the U.S.-Iran agreement could mean for inflation there. UK May CPI surprised to the downside yesterday.