- Oil prices dip on the lack of fresh ME attacks; hopes for fresh ceasefire talks
- Risk appetite improves, with US equities rebounding after another difficult week
- Investors prepare for pivotal tech earnings, the Fed meeting and key US data releases
- Dollar weakens; euro/dollar tests key resistance and dollar/yen remains above 163
US Pauses Its Military Operations Against Iran
The first phase of the fresh US-Iran military operations appears to have concluded after almost two weeks of hostilities. Both sides refrained from further attacks during the weekend, opening the door to indirect negotiations for another ceasefire. Unsurprisingly, US President Trump is maintaining his usual aggressive rhetoric, while Israeli PM Netanyahu has repeated his mantra that Iran cannot have nuclear weapons “with or without an agreement”.
Meanwhile, the focus shifts to the Red Sea, where the exchange of attacks between Yemen’s Houthi rebels and Saudi Arabian forces has been underway, adding another headache to global trade, as the Houthis are threatening to close the Bab-El-Mandeb strait.
Despite the Houthi-Saudi skirmishes, oil prices have gapped lower at the start of the new week. spot prices are hovering at around $85, while the December 2026 WTI oil futures contract has dropped to $76, around 8% below last week’s peak. A continuation of the current status quo, with behind-the-door negotiations fuelling expectations for a short-term ceasefire, would allow oil prices to gradually drift even lower.
Risk-On Reaction in Stocks
The soft patch in risk appetite continued last week, with US equity indices ending in the red once again. The index completed its third consecutive weekly loss, the first time this occurred since the height of the US-Iran-Israel conflict in mid-March. Fresh tariffs, mixed earnings results, the oil price rally and stronger expectations were the main culprits for these movements.
However, Middle East developments appear to have prompted a small risk-on reaction today, but movements have been measured so far. Similar to oil prices, most equity indices and gold have gapped higher, but remain below their respective last week’s highs. More importantly, sovereign bond yields are also in retreat today across the curve.
And this is understandable, as apart from the fragile situation in the Middle East, there is an exceptionally busy calendar ahead. It will be a quiet start to the week, with the important, but rarely market-moving, US released today, but the pace picks up tomorrow (Tuesday). The Conference Board will act as the best appetizer for Wednesday’s Fed meeting and Thursday’s advance Q2 report.
But the real test for the market will be the earnings reports from technology behemoths. , , and , along with other AI-related firms such as Qualcomm and Lam Research, will publish their Q2 earnings, with the focus being on profitability, investment progression and their immediate outlook. Last week’s tech earnings left a sweet-and-sour taste in markets, and hence another set of mixed results might not be taken lightly by investors.
Dollar Slips
The muted risk-on reaction has put the under pressure as, at the time of writing, it is the weakest link in the FX space. is climbing toward 1.1410, around half a big figure above last week’s trough, and is approaching a key downward sloping trendline that has been capping upside movements since mid-May.
Interestingly, has once again failed to take advantage of the dollar’s weakness, trading around 163.50 in the early part of the European session. Following Friday’s signal from Finance Minister Katayama about being “ready to take decisive action on the yen”, PM Takaichi stated that “FX rates move on various factors, and it is hard to identify the impact of any specific factor”. This potentially means that an intervention remains off-the-table for now. A surprise rate hike at Friday’s BoJ meeting would strengthen the yen, but such a move appears to be out of the question considering PM Takaichi’s stance.
Finally, the risk-on reaction has also paused the recent drop. However, market concerns about PM Burnham’s economic plan are lingering, as investors are still in the dark about the funding sources of the incoming PM’s spending plans.
