U.S. Indices closed mixed on Wednesday, with tech taking a hit while small caps outperformed. The day was filled with mixed messaging around geopolitics, but tech stocks were hit by software names on more private credit redemption caps from Apollo and Ares, while Claude also released a new tool, sparking renewed AI disruption concerns. Crude prices settled well in the green, paring some of the weakness on Monday, as attacks on or near Iranian nuclear sites and reports of Troop deployment added to the concerns, while there is still uncertainty about negotiations. President Trump continued to sound optimistic, noting they are having tremendous success in Iran, and they are talking to the right people who want to make a deal. He suggested Iran is talking sense, and he went as far as to say he thinks they can call the new leaders a regime change, while also stating Iran sent the US a significant gift to do with the Strait of Hormuz, but without elaborating. Reports in Axios suggested that high-level US/Iran talks could take place on Thursday. Treasuries were lower across the curve, paring some of the gains on Monday, with higher oil prices weighing on the curve, while the 2-year auction was also woeful. In FX, it was a Dollar story which was largely supported by the rebound in US Treasury yields and crude mixed geopolitical updates. Data saw a chunky revision higher to US Unit Labour Costs and mixed Flash S&P Global PMI readings, but the focus was largely on US/Iran. Gold and Silver finished little changed, while Bitcoin was hit. The Final Q4 Unit Labour costs rose 4.4%, well above the 2.8% forecast and versus the prior 1.8% decline. Nonfarm productivity, meanwhile, rose 1.8%, below the 2.8% forecast and down from the prior 5.2%. The rise in unit labour costs was led by a 6.3% increase in hourly compensation and a 1.8% increase in productivity. The increased productivity was due to a 1.5% increase in output while hours worked declined by 0.2%. The Final Q4 report may raise some fears about inflation through higher wages due to the 4.4% increase in unit labour costs, largely due to the 6.3% increase in hourly compensation. However, Fed officials continue to highlight how inflation is not being driven by employment. The main risk at the moment is a prolonged war and the impact of sustained, higher energy prices. OxEco summarised the data by saying “The upward revision to unit labor costs nudged the annual trend higher, but given the pace of productivity, they are unlikely to be a source of inflationary pressure. The depressed rate of hiring, particularly after accounting for the war in Iran, means this measure is unlikely to accelerate in the near-term.” Elsewhere, Oil closed higher by 4% while Gold was flat following another volatile trading session.
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