Markets Cautiously Optimistic Amid Competing Forces: Fed Hawkishness vs. Iran Peace Deal

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Hello, this is Leonie Kidd writing to you from London. Welcome to today's edition of the Daily Open newsletter.

If markets could talk, they would sound cautiously optimistic.

There are two competing forces feeding into today's session. First, the hangover from the first Fed meeting chaired by Kevin Warsh, which spooked stocks and bonds with its hawkish tone.

Second, the signing of the memorandum of understanding by President Donald Trump and Iran's president, which is driving risk-on sentiment.

Another interesting session ahead for Thursday's trade.

What you need to know today

New Fed Chairman Kevin Warsh certainly made a splash with his debut policy meeting.

Opting to keep benchmark rates on hold this time, it was the indication of a more hawkish rate path that spooked investors. Nine of 18 Fed officials project that the federal funds rate will end 2026 above its current range of 3.5% to 3.75%.

But one dot from the dot plot is missing: that of Chairman Warsh himself. "I did not submit a dot for me. It's not helpful in the conduct of policy," he told the post-decision press conference.

You can find CNBC's five biggest takeaways of the Fed meeting here.

The markets were spooked. The S&P 500 tumbled more that 1% in Wednesday's session, marking the worst performance for the index on the first "Fed Day" under a new chair since 1994.

Short-dated Treasury yields rallied, with the two-year yield hitting a high of 4.22%. Strategists speaking to CNBC remain divided on whether the spike is "exaggerated" or if there is room for more.

Another step has been taken toward peace in the Middle East.

President Donald Trump and Iranian President Masoud Pezeshkian have digitally signed a memorandum of understanding in an effort to establish a permanent peace deal between the two nations.

The text calls for the immediate end to military actions by Israel in Lebanon and the full reopening of the Strait of Hormuz without tolls by Iran for at least 60 days.

The MOU, which includes 14 separate points, includes an agreement for the U.S. and Iran to resolve the question of how to dispose of the Islamic Republic's stockpile of highly-enriched uranium.

Oil prices fell following these developments, while the International Energy Agency claimed a lasting resolution to the conflict will result in significantly higher supply volumes and could spark a major oil overhang next year.

Meanwhile, the G7 leaders meeting in Evian-les-Bains, France, has wrapped up after a day of debating developed economies' approach to AI sovereignty. The CEOs of Anthropic and Google DeepMind called for the creation of an "AI coalition," while French President Emmanuel Macron warned against nationalist AI policies.

The European Commission's Digital Sovereignty chief and Germany's digital minister told CNBC at VivaTech that Europe and the U.S. share the same concerns around AI and cybersecurity.

— Leonie Kidd

And finally...

Allbirds continues AI pivot with name change and CEO hire, sending stock soaring

Two months after its unexpected artificial intelligence rebrand, Allbirds is changing its name to Smartbird and appointing a new chief executive.

The shoemaker-turned-AI infrastructure firm on Wednesday named Nadia Carlsten as CEO and board member, replacing current CEO Joe Vernachio.

Carlsten previously led Amazon Web Services' quantum computing center and worked at the U.S. Department of Homeland Security. Most recently, she was CEO at DCAI, an AI infrastructure company that recently partnered with Nvidia and is home to a supercomputer known as Gefion.

Shares of BIRD soared 39% on Wednesday.

— Samantha Subin