Key Takeaways
- Gold prices surged over 3% to approximately $4,230 per ounce, hitting a one-month high as optimism grows over a potential deal between Iran and Oman to reopen the Strait of Hormuz.
- Minneapolis Fed President Neel Kashkari advocated for a gradual increase in interest rates, stating that while policy is not yet "particularly restrictive," he does not support aggressive hikes.
- U.S. crude oil inventories rose unexpectedly by 2.48 million barrels for the week ending July 31, defying analyst expectations of a 1.5 million barrel drawdown.
- Chinese optical module stocks faced a sharp selloff following reports that the FCC is drafting a ban on imports of new Chinese data center hardware, including transceivers used in AI infrastructure.
- Ukrainian President Volodymyr Zelenskyy warned that Russia is accelerating ballistic missile production ahead of winter, as a shortage of Western interceptors left Kyiv unable to stop a barrage that killed 17 people on Wednesday.
Geopolitical Breakthrough in the Strait of Hormuz
Markets are reacting sharply to reports that Iran and Oman are finalizing a "middle corridor" agreement to restore commercial shipping through the Strait of Hormuz. Under the proposed 60-day interim deal, inbound vessels would use an Iranian-controlled lane while outbound ships would transit Omani waters. President Donald Trump signaled on Wednesday that an official announcement could be imminent, suggesting the deal is a "last chance" for Tehran to avoid further escalation.
The prospect of reopened shipping lanes has significantly eased inflation fears linked to energy costs. Brent crude prices fell as much as 5% on the news, which in turn bolstered expectations that the Federal Reserve may not need to maintain its current hawkish stance. This shift in sentiment has been a primary driver for Gold (XAU), which has now gained for three consecutive sessions.
Fed Policy and the "Warsh" Influence
In an interview with CNBC, Minneapolis Fed President Neel Kashkari broke with the recent hold on rates, suggesting "now is the time to start gradually raising rates" to ensure inflation returns to the 2% target. Kashkari noted that Fed Chair Kevin Warsh has encouraged policymakers to use their independent judgment regarding the economy's resilience. Despite his call for action, Kashkari emphasized that he is not advocating for "significant" or "dramatic" hikes that would intentionally slow economic growth.
The central bank is expected to receive a "significant amount of data" before its September meeting, which will be critical in determining the path of real yields. Market participants have already begun lowering the probability of a September rate hike to 57%, down from 67% earlier in the week, as the cooling geopolitical climate offsets the hawkish rhetoric from some Fed officials.
Energy Markets and Inventory Surprises
The Energy Information Administration (EIA) reported a surprise build in U.S. crude stockpiles, with inventories rising by 2.479 million barrels against an expected decline. Cushing crude inventories also saw a significant increase of 2.356 million barrels, adding downward pressure to oil prices already reeling from the Hormuz negotiations. However, refined products showed some tightness, with distillate stocks falling by 3.473 million barrels, indicating that fuel demand remains robust despite the increase in raw crude supply.
AI Supply Chain and Trade Restrictions
The technology sector is bracing for impact as the FCC reportedly prepares to restrict imports of Chinese-made optical transceivers, citing national security concerns. Shares of Chinese leader Zhongji Innolight (300308) fell as the company generates over 60% of its revenue from the U.S. market, serving clients like Nvidia (NVDA) and Google (GOOGL). Conversely, North American competitors such as Coherent (COHR), Lumentum (LITE), and Applied Optoelectronics (AAOI) saw double-digit gains as investors anticipate a forced shift in the AI hardware supply chain.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.