On Again, Off Again: Markets Navigate Fragile Diplomacy

The US-Iran relationship has been on-again, off-again since the Memorandum of Understanding (MoU) was signed in mid-June, and it has flipped firmly back into the “off” phase this week. The US accused Iran of attacking tankers in and around the Strait of Hormuz, revoked its Iran oil sales authorisation, and carried out targeted strikes.

This intuitively sent oil prices higher as the geopolitical risk premium re-entered the market. Brent crude climbed back above $76.50, posting a gain of more than 5% in response to the renewed hostilities. Once again, traders were reminded how quickly sentiment can shift when the world’s most critical energy chokepoint is involved.

The market is still trying to price in both hope and risk at the same time. With the Strait of Hormuz once again in focus and tanker traffic disrupted, the price action remains headline driven. Any sign of de-escalation pulls prices lower, while fresh military action or tough rhetoric pushes them higher.

In FX markets, the stronger tone in oil helped drag the US Dollar higher, with the greenback also finding support from rising Treasury yields. The Dollar Index (DXY) has pushed back above the 101 level. USDJPY continues to trade near 40-year highs above the 162 level. The yen is getting little respite, and the threat of further intervention by Japanese authorities remains a constant background theme.

Gold has come under pressure again this week. The precious metal’s post-NFP rally has stalled as the combination of higher oil, a firmer US Dollar, and elevated Treasury yields weighs on its appeal. Despite the geopolitical backdrop, gold is struggling to play its traditional safe-haven role while inflation concerns and rising real yields dominate the narrative. Persistent central bank buying, particularly from China and other emerging markets, continues to provide some underlying support, but it has not been enough to offset the macro headwinds. Gold likely needs a let-up in yields or the Dollar to push meaningfully higher. Support awaits around $4085, $4025 with firmer support at $3960, while near-term resistance sits at $4180.

Tech stocks continue to face scrutiny from investors seeking better value elsewhere. After leading the market for much of the year, the sector is seeing rotation into more defensive areas. Samsung Electronics was a case in point, falling around 7% on Tuesday despite reporting a record Q2 operating profit of 89.4 trillion won ($58.4 billion), which was a staggering 19-fold increase year-over-year. The sell-off highlights how the bar for “wowing” the market has risen dramatically for tech names. Lofty valuations mean even excellent results can trigger profit-taking if they fail to exceed already sky-high expectations.