- Oil price rise scares both investors and the US administration
- Dollar rally pauses, while gold’s inability to climb is surprising
- Asian equity indices plunge, as European underperformance persists
- Dollar/yen reached intervention levels; quiet calendar today
Oil rally in the spotlight
Friday’s shocking nonfarm payrolls report, which almost immediately beefed up Fed rate cut expectations for 2026, feels far behind us as markets are currently on fire due to the oil price rally. With the joint US-Israel operations continuing at full force, the Iranian regime is targeting oil installations in fellow Arab countries while also keeping the Hormuz Strait under close monitoring, as only the most daring captains cross it in exchange for hefty compensation.
Additionally, during the weekend, Israel started targeting Iranian oil depots, contributing to the jump in oil prices. At the time of writing, the front WTI contract is trading just above $100, considerably below the $120 printed earlier today, which was the highest level since June 2022 in the aftermath of the COVID pandemic.
Reports suggest G7 finance ministers are scheduled to discuss in a conference call today the joint release of oil reserves coordinated by the International Energy Agency (IEA). A figure of 300-400m barrels has been touted and, while significant, it is just a short-term reactive move to temper the rally in oil prices. The main issue remains the effective closure of the Strait of Hormuz, despite the US announcing a $20bn reinsurance facility for shipping.
Is Trump happy about the oil rally?
While US President Trump stated during the weekend that the rally in oil prices is a small price for world safety and peace – a rather convenient statement to make since the US is not dependent on oil and gas imports – it is evident that he is already thinking ahead to the November midterm elections, which will shape the second part of his presidential tenure.
Rising petrol prices, higher inflation and a plunging stock market could become real issues for the Republicans’ chances to maintain a majority in both Houses. This situation also validates reports that the US administration is not happy with Israel’s attack on Iranian oil installations. It could explain the sudden visit of US Middle East Envoy Steve Witkoff and senior White House adviser Jared Kushner to Israel on Tuesday. Speculation about a brewing crisis in US-Israeli relations is far-fetched, but it is evident that these two close allies might have a different understanding of how the current conflict should progress and eventually end.
Markets are on fire
With Asian stock indices posting sizeable losses, focus shifts to European indices that should remain under severe pressure as the negative momentum in the eurozone persists. Euro/dollar is trying to climb higher today after, as expected, testing the lower boundary of the recent wide rectangle.
While this move could make sense as a risk-off reaction, the decline in euro/pound appears to be exaggerated, considering the numerous issues the UK economy faces and the fact that the market is currently pricing in 53bps of ECB rate hikes in 2026. Technically, this pair dropped below the 200-day simple moving average (SMA), a similar move to early February that did not last more than three sessions.
Meanwhile, gold continues to ignore reports of China’s persistent buying and the broader geopolitical events. Coupled with the rally in sovereign bond yields, safe haven assets performance is disappointing. The yen is firmly in this category as the bullish pressure in dollar/yen persists. The pair traded earlier today at 158.89, the highest level since late-January when the famous ‘rate check’ from the New York Fed resulted in a swift drop to the 152 zone. Verbal interventions have become the norm, but actual intervention is more likely by the day as geopolitical developments remain the main market force.
Finally, following the stronger Chinese CPI report and the mixed Japanese data, today’s calendar is quiet, with a notable absence of scheduled Fed speakers. Importantly, both the US and Canada have switched to DST, moving their clocks one hour forward and cutting the time gap to London to four hours for the next three weeks.