US officials say technical negotiations between the two sides have not stopped, and the US and Iran “fight while talking” are driving a strong rebound in technology stocks

The Zhitong Finance App learned that some media quoted information revealed by a US government official as reporting that technical negotiations between the US and Iranian governments continued after the two-day restarting geopolitical conflict in the Middle East threatened the already fragile temporary cease-fire agreement between the US and Iran. The official said on Thursday that the US remains committed to finding a long-term peaceful solution with Iran. Since discussions should not be made public, the official requested anonymity.

The above remarks may allay concerns from the outside world about a return to all-out war. Earlier, the US launched a new round of attacks on Iranian targets in retaliation for what it called a military-grade attack carried out by Tehran on ships in the Strait of Hormuz. Iran, on the other hand, fought back against several US military bases in the region over the past two nights.

The US and Iran have maintained technical negotiations even after a new round of mutual attacks, which means that the two sides have not yet closed diplomatic exports. As a result, the market can moderately lower the probability that “the conflict will escalate again into an all-out war and the Strait of Hormuz will be interrupted for a long time,” but this by no means means that the geographical risk has been lifted.

The US is once again tightening restrictions on Iran's oil sales, and the two sides still have fundamental differences over shipping traffic, frozen assets, nuclear issues, and control over the strait, so the current more accurate pricing is a “weak downgrade” rather than a “permanent peace.” However, the market has shown conditionally optimistic expectations: oil prices have recovered part of the war premium, the US stock market rebounded, the S&P 500 index rose about 0.8%, and the NASDAQ index rose about 1.3%. The SK Hynix and Samsung, which had fallen to a bust several times this week, and Korea's KOSPI composite stock index rebounded 5% on Friday after a slight rebound on Thursday, indicating that traders are switching back from an all-out conflict scenario to a “manageable friction, technical negotiations between the two sides are still ongoing.”

On Thursday, shipping through the Strait of Hormuz instantly came to a standstill. Iran insists that it maintains control over this waterway. This is one of the many issues where the two sides still have huge differences. The US Central Command said on Thursday that “Iran does not control the Strait of Hormuz.” Despite this, the US has yet to re-implement its own blockade.

As November's midterm elections approach, Trump is under pressure domestically due to the Middle East geopolitical war driving the rise in gasoline prices, and he has little intention of continuing military action for longer. Speaking about the war at the NATO summit this week, he said, “I don't think it will fully break out again. I think things will soon be clear.”

Military exchanges and negotiations go hand in hand: the fragile cease-fire is being tested by stress, and the US-Iran game affects the global energy market

In the midst of a new round of violent clashes, Trump hinted on Wednesday EST that the short memorandum of understanding between the US and Iran had “ended,” but at the same time said that he would not prevent negotiations from continuing. Negotiations between the US and Iran were postponed this week due to the Islamic Republic of Iran holding a funeral ceremony for former Supreme Leader Ali Khamenei for several days in a row. Khamenei was killed in an air strike on the first day of the US-Israel joint military operation.

The recent escalation of the geopolitical conflict in the Middle East, combined with the US Treasury's decision to lift the exemption that allows the sale of Iranian oil on a global scale, poses the biggest challenge to the temporary peace agreement.

Increased tension has caused the speed of passage through the Strait of Hormuz to slow down sharply once again. Oil prices surged earlier this week, then basically stabilized but remained high for many weeks, as traders reassessed a range of potential risks faced by energy transportation in the Strait of Hormuz and the remaining transportation channels.

The interim peace agreement signed by the US and Iran began a 60-day temporary peace negotiation period with the aim of reaching a broader peace agreement. The agreement should have promoted the speedy reopening of the Strait of Hormuz; the strait was previously largely closed due to the effects of the war.

Both sides accuse each other of violating the cease-fire agreement. Washington accuses Tehran of attacking the ship, while Iran claims that the US government and Israeli military are interfering with its control over the key shipping waterways in Hormuz. Oil prices have risen this week, but they are still far below the historic high they hit in March.

The US official characterized Iran's attack on a ship in the strait as a terrorist act and stated that Iran's actions failed to meet the conditions in the memorandum of understanding based on performance of the agreement.

It is worth noting that since a new round of geopolitical conflict between the US and Israel and Iran reached a short cease-fire agreement at the end of February, the US and Iran have also failed to make significant progress on issues such as shipping tolls in the Strait of Hormuz, the specific flow of frozen Iranian assets, Tehran's core nuclear issue, and enriched uranium assets.

The US-Iran technical negotiation progress bar has become the new macro valve for the AI bull market

As oil prices recover part of the war premium, and the US stock market and the Asia-Pacific stock market begin to rebound, traders are switching back from a new round of full-scale conflict between the US and Iran to the benchmark scenario of “manageable friction, negotiations are still ongoing.”

Continued technical negotiations between the US and Iran have reduced the immediate probability of an all-out war, driving back some of the increases in oil prices and supporting a major rebound in global technology stocks; however, the Strait of Hormuz is still mostly blocked in energy transportation. Brent and US WTI crude oil prices have continued to rise by about 6% and 5% respectively this week, further indicating that market transactions are “conflict under control,” rather than the complete disappearance of geopolitical risks.

If technical negotiations are maintained and strait traffic continues to improve, falling energy prices will ease inflation expectations and term premiums, favor long-term treasury bond assets, global growth technology stock themes, and the currency of oil-importing economies, while weakening the safe-haven demand for the US dollar; conversely, once tankers are attacked again or the straits are tightened again, the market may quickly repeat the previous combination — rising oil prices, rising bond yields, and the strengthening of the US dollar, and pressure on European, American and Asian stock markets.

Earlier, when Trump claimed that the memorandum of understanding between the US and Iran “has come to an end,” oil prices once rose by about 5%, the European stock market fell by about 1.1%, and bonds weakened at the same time. He also said that this crisis was not a traditional “risk aversion will inevitably drive up bonds,” but is closer to stagflation transactions caused by energy supply shocks.

Global technology stocks, especially popular stocks in the overvalued AI semiconductor sector, are one of the most direct beneficiary assets of this round of geopolitical cooling: falling oil prices not only reduce the electricity and broader energy cost expectations of enterprises and data centers, but more importantly, reduce the risk of inflation and reduce the pressure on the Federal Reserve to maintain high interest rates or even shift to a rate hike and austerity policy in the second half of the year, thereby reducing the future cash flow discount rate on the denominator side of the DCF model. The recent strong rebound logic between NASDAQ and global AI semiconductor stocks is the result of a combination of “significant drop in oil prices+declining US bond yields + active catalyzation of the industrial chain”. However, if the conflict once again drives up oil prices and yields, the subject of overvalued AI will still be the most sensitive stress test target for global risk assets.