Equity markets in Asia opened the week on a softer note, while oil prices briefly surged to five-month highs, as investors braced for a potential response from Iran following reported US strikes on its nuclear facilities. The geopolitical uncertainty has reignited fears over global economic disruption and upward pressure on inflation.
Despite the heightened tension, market reactions remained largely orderly. The US dollar saw only a marginal safe-haven bid, and there was no indication of broad-based risk aversion across financial markets. Brent crude rose 1.9% to trade at US$78.46 per barrel, while West Texas Intermediate advanced 2% to US$75.30, both pulling back from earlier highs. Gold inched up 0.2% to US$3,375 an ounce.
Investor sentiment remains divided. Some are cautiously optimistic that Iran may step back from further escalation, especially as its nuclear ambitions face setbacks. Others speculate that a change in leadership could bring a less confrontational stance.
However, JPMorgan analysts issued a stark reminder that historical instances of regime change in the region have often driven oil prices sharply higher—citing past episodes where prices spiked as much as 76% and averaged a 30% increase over time.
Strategic concerns remain focused on the Strait of Hormuz, a critical chokepoint where approximately 20% of global daily oil flows. With the US now involved, the prospect of Iranian retaliation disrupting shipments has increased significantly. Analysts at ANZ suggested that oil prices in the range of US$90–US$95 per barrel could be a likely outcome if tensions escalate further.
Equity markets showed relative resilience despite the geopolitical overhang. Futures on the S&P 500 eased 0.3%, while Nasdaq futures were down 0.5%, recovering from earlier losses of nearly 1%. Japanese Nikkei futures slipped marginally to 38,380, indicating a modestly weaker open.
In currency markets, the US dollar firmed 0.2% against the Japanese yen to 146.36, while the euro dipped 0.3% to US$1.1485. The dollar index gained 0.25% to reach 99.008.
There was no strong flight to fixed income assets, with US Treasury futures rising just a single tick. Interest rate futures also edged lower, as investors reassessed the inflationary implications of sustained high oil prices—particularly in light of recently implemented tariffs impacting US consumer prices.
Despite recent dovish commentary from Federal Reserve Governor Christopher Waller advocating for a potential rate cut at the upcoming 30 July meeting, the market continues to price in a greater likelihood of easing in September. Fed Chair Jerome Powell and several other policymakers have maintained a more cautious tone.
With at least 15 Federal Reserve officials scheduled to speak this week and Powell set for two days of congressional testimony, investors will be closely monitoring any signals regarding the Fed’s policy path, particularly in light of President Trump’s tariff measures and developments in the Middle East.
The geopolitical backdrop is also expected to dominate discussions at the NATO leaders’ summit in The Hague, where increased defence spending is on the agenda.
On the economic calendar, markets are awaiting US core inflation data, weekly jobless claims, and preliminary readings of global manufacturing activity for June.
-Reuters
