The Morning Edge: Israel Launches Pre-emptive Strike on Iran as US Pushes Diplomatic Track

QUICK SNAPSHOT
Global Sentiment: Risk-off
Factors: Israel-Iran conflict

TODAY’S WATCHLIST
- India May Trade data
- Eurozone April trade data

THE BIG STORY
Tensions in the Middle East escalated sharply as Israel launched what it called a “pre-emptive strike” against Iran, declaring a state of emergency and warning of imminent missile and drone retaliation. Israeli Defence Minister Israel Katz confirmed the offensive, with air raid sirens sounding across Tel Aviv shortly after the announcement. The US, distancing itself from the military action, stated it were not involved in the Israeli strike. Yet, it remains engaged diplomatically, with President Donald Trump reaffirming on Thursday his administration’s commitment to nuclear negotiations with Iran. “They could be a great country, but they first must completely give up hopes of obtaining a nuclear weapon,” Trump said, signalling a parallel track of diplomacy even as military tensions surge. Ahead of the Israeli strike, Iranian President Masoud Pezeshkian vowed to continue uranium enrichment and rebuild any destroyed facilities, underlining the fragility of the region’s stability.

DATA
US producer prices rose just 0.1% in May, undershooting expectations and pointing to subdued inflationary pressure. The modest gain was driven by lower service costs, particularly air fares, and follows a revised 0.2% decline in April. Year-over-year, the PPI increased 2.6%, slightly above April’s 2.5%. US Jobless claims remained at 248,000 for the second consecutive week, marking an eight-month high and indicating a softer labour market. Deceleration in domestic demand and seasonal effects, such as school-related layoffs, may keep claims elevated in the near term. 

WHAT HAPPENED OVERNIGHT
US stocks closed higher on Thursday, lifted by AI optimism and softer economic data despite lingering geopolitical concerns. Oracle soared 13.3% to record highs after raising its annual revenue growth outlook, citing strong demand for AI-related cloud services. Gold miners also rallied as bullion prices rose, with Newmont up 4.9% and Harmony Gold gaining 4.1%. Meanwhile, softer US producer prices and a rise in jobless claims eased fears of inflationary pressure from tariffs, reinforcing expectations of a potential Fed rate cut. Losses in Boeing shares and Middle East tensions capped broader gains.

US Treasury yields dropped further on Thursday, driven by softer inflation data, renewed trade tensions, and geopolitical risks. The 10-year yield fell nearly 6 basis points to 4.36%, extending the previous session’s decline as markets priced in a more dovish outlook for Federal Reserve policy. President Trump’s announcement of upcoming unilateral tariff letters added to concerns, while Iran’s threat to target US bases heightened risk-off sentiment. A strong 30-year bond auction helped push long-end yields lower, with the 30-year yield down 7 bps to 4.84%, heading for its steepest weekly drop since March.

The US dollar slid sharply on Thursday, pressured by soft inflation data and rising geopolitical uncertainty. May’s weaker-than-expected consumer price report reinforced expectations that the Federal Reserve may resume rate cuts sooner, pushing the dollar index below 97.8, its lowest level since 2022. The euro surged to its highest since October 2021 at $1.1632 and was last up 0.8% at $1.1576.

Brent crude oil prices dipped on Thursday as traders locked in profits following a sharp rally fuelled by Middle East tensions. After surging over 4% in the previous session, Brent crude slipped 0.6% to close at $69.36 a barrel, while US West Texas Intermediate edged down 0.2% to $67.97. The retreat came amid concerns that geopolitical risks could still disrupt supply.

Day’s Ledger
Economic Data:
• Japan April Industrial Production data
• India Passenger vehicles sales for May
• India May trade data
• Eurozone April Industrial Production data
• Eurozone April trade data
• India weekly FX reserve data
• US Baker Hughes Oil Rig Count
Corporate Events:
• Jan-Mar earnings: Nagpur Power, Rose Merc, SpiceJet, State Trading Corp, Unified Data
• Blue Cloud to consider preferential issue 
• Murae Organisor to consider bonus shares
Policy
• ECB Montagner Speech
ECB's Elderson speaks

Tickers
• DCM SHRIRAM will acquire Hindusthan Speciality Chemicals for ₹3.75 billion by September to expand into epoxy and advanced materials and strengthen downstream integration of epichlorohydrin.

• HCL TECH has been selected by Volvo Cars to provide global end-to-end engineering services, expanding its role beyond digital and lifecycle services. Financial terms were not disclosed.

• RBI has approved the reappointment of Rakesh Jha as executive director at ICICI BANK for two years from Sept. 2, within the board-approved five-year term.

• JUBILANT PHARMOVA will transfer its API business to Jubilant Biosys via slump sale valued at ₹6.66 billion, aiming to boost efficiency and asset utilisation. Completion expected by September.

• NBCC has secured ₹5.18 billion worth of orders from Navodaya Vidyalaya Samiti for campus construction projects across Arunachal Pradesh, Manipur, Assam, and Telangana.

• Delhi High Court upheld a bar on NEWGEN IT TECHNOLOGIES using ‘Newgen’ branding, citing its prior relationship with Newgen Software and lack of bona fide intent.

• NTPC has added a 660-MW unit to its Barh Super Thermal Power Project in Bihar after successful trial operations, increasing the project's total installed capacity.

• SHRIRAM WEALTH plans to offer broking-linked products via GIFT City without a local office. The group remains cautious on bond issuance due to volatile secondary market conditions.

• Delhi High Court rejected RSPL’s plea to stop SUN PHARMA’s sale of ‘Pruease’ tablets, finding no risk of confusion with RSPL’s ‘Pro-ease’ sanitary products.

• TORRENT GREEN ENERGY won a ₹26.5 billion bid to develop a 300-MW wind power project. The 25-year contract was awarded by Solar Energy Corp. of India.

• WIPRO survey shows 54% of US insurers are in early AI adoption, 46% advanced. Most will boost AI budgets, but legacy system integration remains a key challenge.

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