Iran's 'Trump' card

8 min

•May 6, 202628 days ago

Summary

Markets surge on optimism over a potential Iran peace deal and strong AI-driven corporate earnings, with chipmakers AMD and Samsung posting double-digit gains. Long-dated government bonds face structural headwinds from shifting pension fund demand and elevated borrowing costs globally.

Insights

Markets are pricing in a structural shift toward higher geopolitical fragmentation and an AI arms race, which is bullish for tech equities despite near-term Middle East tensions
The Iran peace deal announcement had minimal market impact because equity gains are primarily driven by AI demand forecasts and strong chip earnings, not geopolitical risk reduction
Long-dated government debt is facing a structural demand problem as pension funds reduce duration exposure due to demographic shifts and retirees drawing down savings
The shock from elevated oil prices has not materialized in either financial markets or the real economy, suggesting markets have already priced in geopolitical risk
Government spending on tech infrastructure and defense is accelerating as countries develop domestic chip and tech capabilities to reduce reliance on allied suppliers

Trends

AI-driven chip demand continues to exceed forecasts, with chipmakers consistently raising guidanceGeopolitical fragmentation is driving government and corporate tech spending as countries pursue technological sovereigntyLong-dated government bond yields hitting multi-decade highs amid structural pension fund reallocation and increased sovereign borrowingDecoupling of equity market performance from Middle East conflict risk, suggesting markets have normalized geopolitical tensionsTech sector consolidation around AI infrastructure as national security priorities reshape supply chain strategiesPension fund portfolio rebalancing away from long-duration assets due to aging demographics and liability matching shiftsUS Treasury yields repeatedly testing 5% resistance level, signaling persistent inflation and borrowing cost concernsSamsung and AMD stock performance reflecting broader chipmaker strength tied to AI capex cycles

Topics

Iran Nuclear Negotiations and Project Freedom SuspensionAI Chip Demand and Semiconductor Supply ChainGeopolitical Risk Pricing in Equity MarketsLong-Dated Government Bond Yields and Structural DemandPension Fund Portfolio Rebalancing and DemographicsUS Treasury Yield Resistance LevelsTech Sovereignty and Domestic Chip DevelopmentOil Price Stability and Economic ResilienceUK Government Bonds and Political RiskCorporate Earnings and AI Capex CyclesDefense Spending and National Security Tech InvestmentInflation Persistence and Central Bank PolicySupply Chain Decoupling and Allied DependenciesKOSPI Index Performance and Regional MarketsMarket Sentiment and Risk-On Positioning

Companies

AMD

Chipmaker posted strong earnings, raised guidance, and stock surged 16% on AI-driven demand

Samsung

Semiconductor company gained 10%+ and joined the trillion-dollar market cap club on chip demand strength

People

Anna Schmansky

Co-host of Reuters Morning Bid discussing market trends and geopolitical impacts

Mike Dolan

Co-host providing analysis on chip earnings, bond markets, and geopolitical risk pricing

Quotes

"It's less that they're looking through and more that they're looking at this new norm that we're in, a world of greater conflict, greater geopolitical fragmentation, as well as an AI arms race."

Mike Dolan•Mid-episode

"This is critical to national security. It critical to defence. It's critical to governmental secrecy. It's critical to how many countries are going to operate going forward."

Mike Dolan•Mid-episode

"The chip demand is roaring, and it's coming from the same sources it has been for the past couple of years. It's coming from the AI build-out, and estimates of that are going up and up and up."

Mike Dolan•Early episode

"There's a big question as to whether this is a buying opportunity, or it something that you might want to be wary of."

Mike Dolan•Late episode

Full Transcript

Today, oil tumbles and stocks surge anew as President Trump signals an Iran peace deal may be in the works. Plus, chipmakers AMD and Samsung leap well over 10% each, with Samsung joining the trillion dollar stock club. And Britain's bonds lead the latest sell-off in long-dated government debt. This is Reuters Morning Bid, bringing you unfiltered market news and analysis straight from the Reuters newsroom, seven days a week. I'm Anna Schmansky in London. And I'm Mike Dolan. It's Wednesday, May 6th. Well, Mike, markets seem to be taking an optimistic look at today's news. We received an announcement yesterday that the Trump administration is going to be suspending Project Freedom, supposedly because there is progress being made in negotiations with Iran on a peace deal. Now, we haven't received any details. We haven't really heard anything from Iran on this. Yet equity prices are up. Oil prices are down. You know, this is something we've really been seeing throughout this conflict. And a lot of it seems to be that not only that markets are just being overly optimistic, but that they're really focusing more on what else is happening, in particular, what is happening in terms of corporate earnings and really the AI story. We obviously saw that in what happened with AMD and Samsung overnight. Yeah. I mean, you said taking an optimistic tone. It's hard to see them taking anything but an optimistic tone over the last week, even before Trump made that announcement about Project Freedom last night or the suspension of it. the S&P ended up at another record high, almost 1% higher. After the Bell AMD, as you mentioned, coming out with results upping its forecast much like all the other chip makers Stock is up 16 before today bell Samsung back from holidays up more than 10 KOSPI crosses 7,000. This chip demand is roaring, and it's coming from the same sources it has been for the past couple of years. It's coming from the AI build-out, and estimates of that are going up and up and up. So even though this has been seen as a positive, clearly some hope that there may be a deal in the works in Iran, although we've been here before, it didn't really need much of a spur. It has to be said. And the economy, even some of the economic numbers we've seen this week, is still moving ahead quite OK, it seems, through March and April. And the sort of shock that we're kind of worried about from oil just hasn't materialized either in the market or in the real economy. Yeah, and this actually makes me think of something that you wrote about recently in one of your columns, this idea that people think about markets looking through what's happening in the Middle East. But what you argued is it's less that they're looking through and more that they're looking at this new norm that we're in, a world of greater conflict, greater geopolitical fragmentation, as well as an AI arms race. And when you put that all together, that's actually quite bullish for global equity markets. Yeah, you've got to look at these in terms of what's happening in the day-to-day and certainly over the last two months, and it is two months now, of this conflict as against what is seen to be a much longer term five ten longer year outlook which is a tech transformation that is not just for civilian use or for gadgets or for the way we work This is critical to national security It critical to defence It's critical to governmental secrecy. It's critical to how many companies, or many countries, I should say, are going to operate going forward. So if you're in a world of much greater rivalry, and I think we can safely say we are, potentially conflict, but also lots of old alliances breaking down. You're no longer in this place where you can just buy it off the shelf or that tech off the shelf from an ally like the United States. That's really where we are. So you have to, countries have to then develop their own. And whatever that means going forward, it does mean more demand for tech equipment and chips and everything that goes with a very large upscale of tech. And also it certainly signals a lot of spending, not just on the corporate side, but also on the government side. And that probably feeds into what we're seeing in the long dated government bond market, which has just been feeling a lot of pain during this crisis. Yeah, we're hitting a lot of milestones this week on that level again. Look, it's been a problem, I think, for the very long dated government borrowing for a year or two or more. There are so many things going on affecting that inflation, government borrowing, higher debt piles. But also, you know, as we hit US Treasury yield, at least hit 5% again for the eighth time in the last three years alone, it's bumped up against that level. And there's a big question as to whether this is a buying opportunity, or it something that you might want to be wary of But it not just in the United States it around the world We seen the problem in Japan in particular and we seen even the problem this week again in the UK where long-dated UK guilts the yield on those, the borrowing rates on those have hit their highest since the 1990s, or worries about local elections in the UK, possibly destabilising Prime Minister Keir Starmer. But all of the picture is underneath this idea that not only is there greater government borrowing going on. But there's also a change in the demand for longer day-to-day. And that had come over the years largely from pension funds who wanted to locate liabilities and match their liabilities over long periods of time as people build up their pension savings. But as demographics moves, demand for that pension fund demand for that long day-to-day is ebbing because people are retiring, drawing down their pensions, and they're drawing on those funds. That means pension funds themselves want to reduce the maturity and the duration of those investments. So this structural demand for long-dated debt has become a problem. So we want to watch that very closely, on top of all the other things, like as we mentioned. latest column. The link is in the show notes. For more on any of today's stories, head to Reuters.com or the Reuters app. Follow us on your favorite podcast player. And if you're on a smart speaker, just ask for the latest market news from Reuters seven days a week. We'll be back tomorrow.