Written by Trump calls off planned Iran attacks
Fresh efforts to reopen the Strait of Hormuz are gaining traction after President Trump called off a planned weekend attack on Iran, following a plea from Saudi Arabia and other Gulf nations. In what Trump described as what would have been “the biggest attack since World War II”, the President suggested that “there’s a deal on Hormuz” and there will be “a deal on the nuclear”, telling reporters on Sunday that new talks with Tehran will begin on Monday afternoon.
Iran seemed to confirm that an agreement on the Hormuz Strait is near after Foreign Minister Abbas Araqchi said that a deal with Oman “is on track for finalisation”.
Oil futures plummeted on Monday, with Brent crude opening with a gap down, while WTI is trading about 6% lower.
However, oil prices are still more than 15% above their post-war lows when the US-Iran ceasefire was in place and traffic through the Strait of Hormuz was on the rise.
Deal hopes met with cautious optimism
US Treasury and other government bond yields are off last week’s highs when inflation risks were heightened amid the renewed tensions in the Middle East and Fed Chair Kevin Warsh’s unconvincing hawkish stance.
But the pullback is modest, which isn’t surprising given the on-off ceasefire and multiple rounds of peace talks.
Traders have been here one too many times and equity markets have also greeted the positive headlines with guarded optimism. Wall Street futures are currently up around 0.5% following two days of sharp rebound, led by Amazon and Microsoft.
AI earnings remain in focus as chip stocks sink again
Chips stocks are stealing the limelight once again, with Korea’s SK Hynix and Samsung tumbling more than 8% today, pulling Japan lower too, although shares in Europe have opened in the green.
With almost two-thirds of S&P 500 companies having reported, the earnings season is entering its final stretch, but there’s plenty of AI-related earnings still to go. Palantir Technologies kicks off the week, with SpaceX and AMD reporting their results tomorrow.
Sky-high valuations remain a concern for these stocks and adding to the jitters lately has been the reminder that Chinese rivals are catching up fast. DeepSeek released a new version of its AI model on Friday, which reportedly is cheaper to run than Anthropic's Claude Fable 5, while Alibaba today announced its latest AI model that also gives Anthropic a run for its money.
Bessent gives yen bulls an additional leg up
Fresh from Thursday’s surprise intervention, the Japanese yen has started the week on a positive note, extending its massive gains. The US dollar has lost nearly 4% of its value against the yen since Wednesday’s close and briefly hit a three-month low of 155.21 yen earlier today before bouncing back up to just below 157.00 yen.
Other majors have also slid versus the yen, especially the euro, which was used by the US Treasury Department to buy the yen in a bid to shore up the battered currency in a rare joint intervention with Japanese authorities.
The New York Fed reportedly carried out rate checks on euro/yen on Friday before intervening, likely opting for that pair instead of dollar/yen so as not to spark fears that the government supports a weaker dollar.
Japan’s finance ministry has warned that further “coordinated intervention” is possible, with US Treasury Secretary Scott Bessent echoing the same message, describing the yen’s recent weakness as “disorderly”. Trump also gave his support to the joint action.
Dollar eyes NFP report for direction, gold drifts
Outside of the yen crosses, however, the greenback is somewhat firmer today, drawing a line on the post-Fed losses when September rate hike odds were slashed. Today’s drop in oil prices casts further doubt on a September move, and with no scheduled Fed speakers this week, all eyes will be on Friday’s nonfarm payrolls report.
A strong report would almost certainly revive dollar bulls, but ahead of that, the ISM manufacturing PMI will be watched for any new insight on the American economy and price pressures.
The dollar’s steadier start to the week is keeping a lid on gold’s gains. The precious metal is climbing to around $4,055, maintaining its lacklustre performance of the past few weeks, drifting sideways amid the confusing picture with both the Middle East situation and Fed policy.
By XM.com
