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[Market Musings] When Doves Collide with Hawks: Inflation Relief Meets Geopolitical Fire(9-13th June 2025) - Soft price data sparks relief rallies before Middle East tensions reshape risk calculations
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Markets navigate the contradiction between dovish inflation signals and escalating Middle East tensions as oil prices surge
Markets discovered this week that economic relief and geopolitical terror make uncomfortable bedfellows. The S&P 500's modest 1.1% gain to 6,045 masked extraordinary volatility as investors celebrated cooling inflation before crude oil spiked nearly $5 on Israel's strike against Iranian nuclear facilities.
Wednesday's CPI report delivered the dovish surprise markets craved. Core inflation printed just 0.1% monthly versus 0.3% expected, while Thursday's PPI confirmed the disinflationary trend wasn't statistical noise. Fed funds futures briefly priced two full rate cuts this year.
That euphoria lasted precisely until Friday morning. Israel's attack on Iranian facilities sent crude from $65 to peaks near $78, while Treasury yields reversed their post-CPI declines. The 10-year yield, which had fallen to 4.36% on inflation relief, surged back to 4.42% as energy-driven price fears overwhelmed dovish data.
The Federal Reserve finds itself in an impossible position. Having explicitly rejected "looking through" tariff-induced inflation, policymakers now face energy-driven pressures that could derail their calibrated path toward accommodation. Markets quickly scaled back rate cut expectations, recognizing that geopolitical volatility complicates central banking exponentially.
The week crystallized an uncomfortable truth: even the most encouraging domestic data can be overwhelmed by geopolitical developments that reshape energy markets within hours. The era of purely domestic policy focus has ended. For investors, the collision between economic doves and geopolitical hawks will likely define market dynamics for months ahead.
The week's economic data painted a picture of underlying strength despite initial concerns about weakening momentum, with inflation providing the most encouraging signals in months.
The Great Inflation Exhale: The week's CPI and PPI releases provided the strongest evidence yet that price pressures are genuinely moderating despite tariff implementations. Core CPI's 0.1% monthly reading, if sustained, would translate to just 1.2% annualized inflation—well below the Fed's 2% target. Critically, services inflation showed particular improvement, suggesting wage-driven price pressures are finally cooling.
Labor Market Divergence Deepens: The stark contrast between ADP's massive disappointment and official payrolls' modest beat highlighted ongoing measurement challenges, but the rise in continued claims to 1.956 million—the highest since November 2021—suggests those losing jobs are struggling to find new employment. This gradual cooling provides the Fed with exactly the labor market softening it has sought without triggering recession fears.
Consumer Confidence Paradox: The University of Michigan sentiment surge to 60.5 from 52.2, significantly beating the 53.5 forecast, coincided with a dramatic drop in one-year inflation expectations from 6.6% to 5.1%. This combination suggests consumers are finally gaining confidence that price pressures will moderate, creating psychological conditions for sustained economic growth.
Manufacturing Recession Confirmed: The ISM Manufacturing PMI's decline to 48.5 marked the eighth consecutive month below the 50 expansion threshold, with new orders collapsing to 46.4. However, the 68.7 reading in prices paid provided clear evidence that tariff costs are beginning to flow through the system, complicating the Fed's inflation outlook despite headline improvements.
The data collectively suggest an economy achieving the Fed's elusive "soft landing"—slowing growth and cooling inflation without recession—though geopolitical developments threaten to complicate this benign trajectory through energy price volatility.
Oracle isn't chasing the AI wave—they're building the tollbooth every AI application must pay to access enterprise data securely. While Wall Street celebrates the obvious metrics (revenue beat by 1.9%, cloud infrastructure up 52% year-over-year), they're missing the profound strategic repositioning that transforms Oracle from legacy database vendor into the essential bridge between enterprise data and artificial intelligence.
The $138 billion remaining performance obligation tells the real story. This backlog, excluding the massive Stargate partnership, grew 41% year-over-year and provides unprecedented revenue visibility extending years into the future. This isn't just contracted cloud capacity—it's evidence of enterprises making strategic bets on Oracle as their AI data backbone. CEO Safra Catz's revelation that "the quality of our RPO has never been better" reflects longer-term contracts with Oracle's largest customers committing to the company's AI infrastructure vision.
The AI Data Platform Gambit: Oracle 23AI represents the company's most audacious strategic move—vectorizing enterprise data while connecting directly to any large language model (ChatGPT, Grok, Gemini) without proprietary information ever leaving customer control. As founder Larry Ellison emphasized, "Nobody else has what we have in terms of the AI Data Platform." This addresses the fundamental enterprise AI challenge: how to leverage LLMs without exposing sensitive data to cloud providers.
The technical complexity creates a strategic moat. While competitors offer AI services that require data to leave enterprise security perimeters, Oracle's approach keeps data within customer control while enabling AI functionality—critical for regulated industries and security-conscious enterprises. This positioning as the "secure AI data layer" rather than commodity compute provider could generate higher margins and greater customer stickiness than traditional cloud infrastructure.
Multi-Cloud Mastery as Distribution Weapon: Oracle's "OCI Everywhere" strategy transforms potential competitors into distribution channels. By embedding OCI capabilities within AWS, Azure, and Google Cloud, Oracle enables enterprises to start with Oracle database services and seamlessly expand to comprehensive AI capabilities without forcing cloud provider choices. This coopetition approach reduces switching costs while positioning Oracle services as complementary rather than competitive.
Inference Economics Over Training: Ellison's insight that "inferencing is going to be a much bigger business than training" for Oracle reveals the company's strategic focus. While competitors chase expensive AI model training workloads, Oracle targets higher-frequency, lower-latency inference workloads that will power day-to-day enterprise AI applications. This suggests different margin profiles and customer stickiness than pure compute plays.
The $25+ billion CapEx commitment over the next few years represents demand-driven rather than speculative infrastructure investment. Unlike traditional cloud providers building capacity and hoping for demand, Oracle's expansion directly responds to contracted customer commitments reflected in RPO. This approach reduces infrastructure risk while enabling premium pricing for scarce AI-optimized capacity.
Oracle appears mispriced for a company positioned as the essential chokepoint between enterprise data and AI capabilities. If the AI data tollbooth thesis proves correct, Oracle isn't just catching up in cloud—they're building the most valuable bridge in enterprise AI infrastructure.
MongoDB's quarter demonstrated how focused leadership and margin discipline can rapidly transform business momentum, delivering the company's strongest results in nearly a year while positioning it perfectly for the AI-driven data modernization wave. Under new CFO Mike Berry's stewardship, the company beat revenue estimates by 4.1% while crushing EBIT expectations by 55%, proving that operational excellence and growth aren't mutually exclusive.
The strategic shifts are paying immediate dividends. Atlas revenue grew 1.5% quarter-over-quarter versus guidance for flat to slightly positive growth, while the revamped go-to-market approach focusing on large enterprise accounts with significant upsell potential is showing "high" sales productivity. The decision to allow mid-market customers to become more self-serve has actually accelerated adoption, as developers prefer the autonomy and reduced friction that self-service provides.
MongoDB's competitive positioning against SQL-based alternatives like PostgreSQL is strengthening rather than weakening. While competitors like Snowflake and Databricks acquire Postgres vendors to improve online transaction processing capabilities, MongoDB's native JSON-based NoSQL architecture provides fundamental advantages for AI workloads that can't be "bolted on" through acquisitions. As CEO Dev Ittycheria noted, competitors' retrofitted features "fall apart in production" when dealing with document sizes beyond 2 kilobytes.
The Voyage AI acquisition is proving transformative, bringing world-class embedding and reranking models that reduce hallucination rates and improve AI application performance. Combined with MongoDB's comprehensive platform including Atlas, real-time streaming, and the AI Applications Program (MAAP), the company now offers the end-to-end infrastructure that AI developers need without stitching together multiple vendors.
While AI revenue contribution remains modest in fiscal 2026, MongoDB's positioning as the data foundation that makes AI possible ensures it will capture significant value as enterprises move beyond experimentation to production AI deployments. At 70x forward earnings, the valuation remains elevated, discounting a combination of margin discipline, platform consolidation, and AI positioning.
Adobe's quarter provided reassurance that even in an era of AI democratization, professional creative tools maintain their value proposition through superior quality, enterprise integration, and workflow optimization. The company beat revenue estimates by 1.2% while raising annual guidance, though the lack of sequential RPO growth that characterized previous years suggests a more measured expansion trajectory.
Digital Media revenue outperformed guidance by 1.5%, demonstrating that despite AI-powered creative tools flooding the market, professionals still rely on Adobe's comprehensive suite for mission-critical work. The company's strategy of infusing AI capabilities throughout its existing products rather than treating AI as a separate offering is proving correct, as customers view enhanced functionality as incremental value rather than competitive displacement.
Digital Experience revenue growth of 1% above guidance reflects Adobe's success in enterprise software, where switching costs remain high and AI features are viewed as productivity enhancers rather than replacements. The platform's ability to integrate creative assets with marketing automation and customer experience management creates ecosystem lock-in that pure-play AI creative tools cannot replicate.
The raised EPS guidance of $0.20, beating estimates by $0.19, reflects operational discipline in a business model that generates substantial recurring revenue with predictable cost structures. While growth rates have moderated to the low teens, the stability and margin profile of Adobe's subscription model provide defensive characteristics that become increasingly valuable in uncertain environments.
At 19x forward earnings with expected 12% annual EPS growth, Adobe is trading at discount to its historical average multiples. The is company successfully navigating AI disruption while maintaining pricing power and customer retention. The key risk remains whether AI democratization eventually erodes demand for professional creative tools, but Adobe's enterprise focus and workflow integration provide meaningful protection against this scenario.
Disclaimer: This analysis is for informational purposes only and should not be considered as investment advice.
By
Kristal Advisors
June 17, 2025
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