As of 6:45 a.m. ET on Thursday, May 28, President Trump dismissed a report that Washington was close to a deal allowing Iran and Oman to jointly manage shipping through the Strait of Hormuz. Hours later, the U.S. and Iran exchanged fresh air strikes. Oil reversed its Wednesday loss, Wall Street futures edged lower, and traders now face a critical inflation reading later this morning that could shift expectations for Federal Reserve policy under new Chair Kevin Warsh.

TL;DR

  • Trump rejected a proposed Hormuz shipping arrangement, sending oil back above $90 per barrel after a 5% drop on Wednesday.
  • The U.S. and Iran exchanged air strikes overnight: Iran's Revolutionary Guards targeted a U.S. airbase after American forces hit Iranian military sites near Hormuz.
  • Wall Street futures are modestly lower heading into the open: Dow E-minis down 0.1%, S&P 500 futures down 0.09%, Nasdaq futures down 0.2%.
  • Treasury yields are edging higher as the continued Hormuz closure adds to inflation concerns.
  • The Personal Consumption Expenditures (PCE) index, the Federal Reserve's preferred inflation measure, is due at 8:30 a.m. ET. A higher-than-expected print could materially accelerate rate-hike bets for year-end.

What Happened: Deal Report Rejected, Strikes Resume, Markets Reprice

On Wednesday evening, Iranian state media reported a draft memorandum of understanding under which Iran and Oman would jointly oversee access to the Strait of Hormuz. The report triggered a sharp 5% oil selloff as traders priced in a potential reopening. Shortly after, President Trump publicly dismissed it, saying there was no deal and that he expected Iran to capitulate rather than sustain the closure.

The rejection triggered a fresh round of escalation. American forces struck a military site in southern Iran described as a threat to U.S. troops and commercial shipping. Iran's Revolutionary Guards confirmed Thursday they had retaliated by targeting a U.S. airbase at approximately 4:50 a.m. local time, without specifying the location. The IRGC said it also intercepted several U.S. drones during the exchange.

Brent crude futures recovered to $96.31 per barrel, up 2.14% as of early Thursday morning ET, while West Texas Intermediate gained 2.2% to $90.63. Both benchmarks had fallen sharply on Wednesday on ceasefire optimism, and are now partially reversing those losses.

This marks the second direct exchange of hostilities in three days and reinforces the pattern of sharp two-way price swings driven by alternating deal reports and renewed escalation signals.

Iran Oil Risk and Thursday's PCE Test: Why Both Matter Today

The Strait of Hormuz has been largely closed to commercial shipping since February 28, 2026, when the U.S. and Israel launched air operations against Iran. The disruption has removed roughly 14.4 million barrels per day of Gulf output from global markets, a supply shock that has kept energy prices elevated and complicated central bank decisions worldwide.

The mechanism is straightforward: when deal reports surface, oil sells off as traders price in reopening. When those reports are denied, the geopolitical risk premium returns quickly. Wednesday's 5% drop and Thursday's 2%-plus recovery are a direct expression of that volatility cycle.

Citi flagged in a late Wednesday note that the sustained crude run-up is beginning to embed in broader inflation via second-round effects, meaning it is appearing in wages and services pricing rather than just headline energy costs. That is the scenario central banks are most focused on containing.

Against that backdrop, Thursday's PCE release carries extra weight. The data is the Federal Reserve's preferred inflation gauge, and any surprise to the upside would add to pressure on new Fed Chair Kevin Warsh to lean hawkish. Money markets currently price the Fed on hold through year-end, with a small probability of a 25 basis-point hike in December. A hot PCE print alongside persistent oil pressure could shift that probability meaningfully higher in a single session.

Implications for Trader Cohorts: Oil, Equities, Bonds

Oil and energy traders are navigating a market where every diplomatic signal produces a large directional move. WTI above $90 reflects persistent supply risk, though it remains below the cycle high above $100 seen in mid-May. The near-term range is driven almost entirely by the flow of news from Washington and Tehran rather than fundamentals.

Equity and futures traders face a modest pre-market headwind: S&P 500 futures down 0.09%, Dow E-minis down 0.1%, Nasdaq down 0.2%. That is not a panic-level move, but the directional risk through the morning depends heavily on the PCE print. When we track intraday performance patterns at chartdojo.io, geopolitical-driven overnight gaps of this size tend to resolve within the first 60 to 90 minutes of the session, often sharply in one direction once the data-flow is clear.

Fixed income traders are watching Treasury yields edge higher as Hormuz-related inflation risk stays embedded. The 10-year yield was near 4.47% as of early Thursday morning, down from a 16-month high of 4.7% on May 20 but still elevated relative to early 2026 levels.

Crypto traders continue to deal with the institutional outflow pressure covered in our earlier post on Bitcoin's drop below $73,000. Broad macro uncertainty and rising rate-hike odds are headwinds for risk assets across the board. For a deeper look at the Fed's evolving inflation posture and its direct link to oil, see our post on Fed Vice Chair Jefferson's warnings from Tokyo.

Potential Positives vs Negatives

Positives: The fact that a deal framework was reported at all suggests some back-channel diplomatic activity remains active. Oil is still below the $100+ highs touched earlier in the crisis, indicating the market has not yet priced in a full-scale permanent closure. Equity futures are only modestly lower, not flagging a systemic repricing. A soft PCE print could offset geopolitical pressure and pull yields back toward 4.4%.

Negatives: Trump's public rejection narrows the visible path to a near-term resolution. Each fresh exchange of strikes resets the de-escalation timeline. Treasury yields rising alongside oil prices is a stagflation signal that limits the Fed's flexibility if growth weakens. A hot PCE print today would amplify all of those pressures simultaneously.

What Could Happen From Here

Base scenario: Oil stabilizes between $90 and $97 as the market balances persistent Hormuz supply risk against slim but non-zero deal optionality. Equities open slightly lower and consolidate through the morning. PCE comes in near consensus at around 2.6% year-over-year for core, giving the Fed room to hold. No further major military exchange occurs before the U.S. open.

What confirms it: PCE at or below 2.6%, no new confirmed strikes during the U.S. morning session, oil holding below $97 Brent. What invalidates it: a hot PCE print above 2.8%, a new confirmed strike on energy infrastructure near Hormuz, or a Trump statement signaling escalation of military objectives.

Upside scenario: Back-channel reports surface confirming renewed negotiations, potentially through Oman, which has been the informal mediator. Oil drops toward $88 to $90. Treasury yields pull back toward 4.35%. Equity futures recover and the S&P 500 attempts to hold near record levels.

What confirms it: Reuters or AP reporting resumed Oman-brokered contact, oil breaking below $90 on volume. What invalidates it: another IRGC retaliation statement, Trump reiterating his rejection publicly in a press event.

Downside scenario: PCE prints above 2.8% core, reinforcing stagflation concerns Citi flagged. Combined with ongoing Hormuz closure and no deal visible, December rate-hike odds push above 30%. Oil holds above $95. S&P 500 futures extend losses toward a 0.5% decline. Treasury yields approach the 4.6% area. Bitcoin stays under $73,000.

What confirms it: PCE surprise to the upside, new Fed speaker commentary explicitly hawkish, oil above $97 Brent. What invalidates it: softer-than-expected PCE and a credible ceasefire signal within the next 6 to 8 hours.

What to Watch Next (Next 24 Hours)

  • PCE inflation data (8:30 a.m. ET Thursday): Consensus is around 2.6% year-over-year for core PCE. A print above 2.7 to 2.8% materially changes the rate outlook for the rest of 2026.
  • Fed Chair Warsh commentary: Any scheduled or unscheduled remarks following the PCE release will be parsed closely for rate-hike signals, given the current energy and inflation backdrop.
  • Oman diplomatic channel: Watch for follow-up statements from Muscat. Oman has been the reported intermediary and was co-signatory on the proposed Hormuz management framework.
  • IRGC statements: Iran's Revolutionary Guards have typically signaled retaliatory intent before acting. Additional statements in the next several hours would indicate whether today's exchange is a single cycle or the start of a sustained escalation.
  • U.S. EIA crude inventory report (Thursday): A larger-than-expected build in domestic crude stocks could cap today's oil recovery even if geopolitical tensions remain elevated.

FAQ

Why did oil fall 5% on Wednesday and then rebound 2% on Thursday?
Wednesday's selloff was driven by Iranian state media reporting a draft Hormuz reopening deal. When President Trump denied the deal Thursday morning and both sides resumed air strikes, the supply-risk premium returned, pushing oil back up.

What does PCE data mean for traders today?
PCE measures consumer spending inflation and is the Federal Reserve's preferred gauge. A reading above consensus would increase the probability of a rate hike before year-end, which would put additional pressure on equities, bonds, and risk assets like crypto.

Today's session puts every asset class in motion at once: oil repricing on Iran headlines, yields sensitive to PCE, and equities walking a narrow path. If cross-asset volatility is testing your process, ChartDojo's AI-powered feedback shows you exactly where your reads held up and where they broke down. Build real skills, not bad habits. Start your free trial at ChartDojo and bring structure to a noisy market.

Sources

Header image source: pexels by Luca Sammarco. License: PEXELS.