USA and Iran exchange blows, oil prices rise, and markets fear a hawkish Fed

🌐 Geopolitics

• Direct military escalation between the US and Iran shook financial markets over the past weekend.
• US forces conducted a strike on targets located on the Iranian island of Larak, justifying it by the detection of preparations to deploy sea mines in the Strait of Hormuz. In response, Iran carried out a massive missile barrage, directly targeting US military bases in Jordan.
• Additionally, the Iranian Revolutionary Guard Corps reported that a supertanker allegedly moving illegally on a southward course burst into flames after striking two sea mines, raising serious concerns about a total paralysis of shipping in this key region.
• Scott Bessent announced regular, weekly imposition of new secondary sanctions on entities linked to Iran.
• The next step for the US administration could be the complete cutting off of key Iranian institutions from the global dollar settlement system. The atmosphere was heated up by Donald Trump, who published an AI-generated video suggesting the destruction of a key Iranian oil terminal on Kharg Island.
• The Ministry of Foreign Affairs of North Korea issued an official statement emphasizing that its nuclear status remains inviolable and will be constantly strengthened.

📊 Macroeconomics

• A hawkish speech by Federal Reserve chair candidate Kevin Warsh during the Jackson Hole symposium triggered deep reshuffling in market expectations regarding US interest rates. Analysts at Barclays bank revised their previous forecasts and now expect two more rate hikes of 25 basis points – respectively in September and December. Meanwhile, according to BofA, pressure is growing for a hawkish Fed move as early as the upcoming September FOMC meeting, which has caused strong pressure on the debt market. However, the market is pricing in less than a 50% chance of such a move.
• France is becoming a major source of concern in the European debt market due to deepening political paralysis and a growing budget deficit. The country’s debt servicing costs are rising sharply, approaching the highs last recorded during the 2008 crisis.
• Macroeconomic data from the Asia-Pacific region indicates an ambiguous pace of economic recovery. China’s manufacturing PMI rose to 49.8 points, exceeding market forecasts, but still remaining below the threshold separating growth from contraction.
• The Japanese bond market saw a sharp rise in yields, with the 10-year yield reaching its highest level since September 1996, and 5-year notes recording a record yield near 2.21%. This results directly from investors’ growing expectations for further interest rate hikes by the Bank of Japan.

🛢️ Commodities

• Oil prices rose sharply at the beginning of the week following reports of direct military clashes and a supertanker fire in the Strait of Hormuz. The market fears a physical blockage of oil supply routes from the Middle East, which, combined with the threat of new sanctions on Iran, is creating strong demand pressure.
• Additionally, coking coal prices in China are heading for record monthly increases due to shrinking supplies for the steel industry.
• Gold prices continue to fall, dropping below the psychological barrier of 4400 dollars per ounce for the first time in over a week. The precious metal remains under pressure from a stronger US dollar and high Treasury yields, which is a direct reaction to the hawkish tone from Jackson Hole.
• In the soft commodities market, cocoa in Europe and the US continues dynamic gains caused by a supply deficit, while sugar is recording a strong downward correction.
• As of 07:32, gold is losing 0.49%, while WTI crude is gaining 2.86%

💱 Currencies

• The Japanese yen managed to strengthen during the Asian session, despite the earlier rise of USDJPY above the 160 level. Investors are anxiously awaiting a possible currency intervention by the Japanese Ministry of Finance, while Scott Bessent calms the market by stating that the yen’s volatility is within acceptable limits.
• Goldman Sachs analysts estimate that despite the turmoil, selected carry trade strategies based on the relative strength of the yen should continue to yield profits.
• The Australian dollar managed to stay above the 0.7150 level thanks to a temporary halt in the appreciation of the US dollar, however, fears of further rate hikes by the Fed and the escalation of geopolitical tensions are limiting the currency’s growth potential.
• The Swiss franc, on the other hand, shows stabilization with a tendency towards slight strengthening, reflecting its status as a safe haven during periods of heightened military risk in the world.
• As of 07:32, the USDJPY pair is losing 0.19%, while the dollar index is losing 0.07%

📈 Stocks and Indices

• Futures on US stock indices are recording slight declines in reaction to the intensification of the conflict in the Middle East, yet Wall Street is heading towards closing its fifth consecutive growth month.
• Indices in Asia, including the Japanese Nikkei 225, are subject to a heavy sell-off due to rising bond yields and war tensions. Chinese airline stocks are losing heavily due to concerns about operational profitability amid skyrocketing oil prices.
• As of 07:32, the S&P 500 index is losing 0.23%, the Nasdaq 100 is falling by 0.16%, and the Dow Jones is losing 0.24%

🪙 Cryptocurrencies

• The digital assets market is recording a noticeable downward correction, which is a direct consequence of investors fleeing risk towards safe havens following reports of attacks in the Strait of Hormuz.
• Bitcoin and Ethereum are subject to declines, breaking local support levels and reacting to the general deterioration of sentiment in global markets. The largest losses are recorded by smaller altcoins, including tokens related to the US political scene and selected utility projects.

💡 Suggested for observation

• WTI Crude (OIL.WTI) — Rising dynamically after military strikes in the Strait of Hormuz; the threat of a blockade of transport routes and potential destruction of oil infrastructure in Iran could trigger a strong short-squeeze.
• Japanese Yen (USDJPY) — The pair tested a key psychological barrier at the 160.00 level, which drastically raises the risk of direct currency intervention by the Bank of Japan and may shake global carry trade positions.
• Gold (GOLD) — The precious metal is becoming cheaper due to rising yields in the US, however, the escalation of the armed conflict in the Middle East could at any moment provoke a sharp return of capital to this safe asset.
• Zcash (ZCASH) — Despite the ongoing correction, this cryptocurrency exhibits a very high, rare statistical deviation from its long-term average, making it an interesting object for quantitative analysis.

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