Morning Bid: Apocalypse later

• The Fed delivered a unanimous 25bp rate hike to 3.75%-4.00% with more hawkish guidance than expected, though President Trump criticized the move on Truth Social while notably not targeting Chair Warsh directly
• Brent crude surged to $109/barrel after Saudi Arabia's Red Sea port at Yanbu suspended operations and the East-West pipeline was damaged, though prices fell to $102 by Friday on reports of alternative shipping routes
• Major AI CEOs including Anthropic's Amodei, Musk, and Altman called for slower AI development citing human extinction risks, but Trump rejected controls and China's state media labeled it a 'conspiracy' to slow Chinese progress

Market Summary: Apocalypse Later

AI Development Concerns

Major U.S. AI company leaders, including Anthropic CEO Dario Amodei, Elon Musk (xAI), and Sam Altman (OpenAI), are calling for slower AI development amid warnings about potential human extinction risks within the next decade. President Trump opposes any slowdown, arguing China would benefit, while Chinese state media claims U.S. calls for caution aim to slow China's technological progress. Concerns about reduced AI spending briefly pressured Wall Street early in the week.

Federal Reserve Action

The Fed raised rates by 25 basis points Wednesday to 3.75%-4.00%, with unanimous support and hawkish signaling indicating more hikes ahead. The move was more aggressive than expected, particularly given previous doubts about Fed Chair Kevin Warsh's independence from President Trump. Trump criticized the decision, calling for 1% rates, but didn't directly attack Warsh. Markets approved, with yield curve movements suggesting increased confidence in the Fed's inflation-fighting credibility.

Energy Market Disruption

Brent crude surged to $109/barrel Monday-Tuesday after Saudi Arabia suspended crude loading at Yanbu Red Sea port following drone attacks on the East-West pipeline by Iranian-backed militias. Prices retreated to lower levels by Friday as Saudi Arabia increased loadings via Oman and the U.S. indicated faster pipeline restoration. However, analysts view the Middle East conflict as a prolonged structural issue rather than temporary shock.

U.S. diesel prices rose above $6/gallon. Trump claimed to broker a Russia-Ukraine energy facility truce, though details remain unclear.

Other Central Bank Actions

Bank of England held rates at 3.75% Thursday, warning of potential hikes if energy volatility continues. Bank of Japan raised rates to 1.25% (31-year high) Friday with two dissenting votes; vague guidance weakened the yen past 157/dollar.

Next Week: Focus shifts to Trump-Xi meeting in Washington.