The dominant macro driver heading into the week of 13 July is the re-escalating US-Iran conflict and its inflationary feedback loop into global monetary policy. US 10-year Treasury yields closed Friday at 4.54% — down 2bp on the day but still elevated — while the 30-year sits at 5.05%, pricing in a prolonged period of restrictive policy as US CPI runs at 4.2% and CME FedWatch now assigns a 61% probability to a September Fed rate hike. The ECB has already moved, hiking 25bp in June to bring the deposit rate to 2.25%, its first increase since 2023. This is not a normal tightening cycle: it is being driven by a geopolitical energy shock, with Strait of Hormuz disruption keeping risk premiums embedded across commodity and rates markets simultaneously. The VIX fell 5.11% to 15.03 on Friday, but that complacency sits uneasily alongside a macro backdrop in which two major central banks are tightening into slowing growth — the World Bank has cut its global growth forecast to 2.5% for 2026.
For Asia-Pacific investors, the cross-asset pressure is concentrated in several specific fault lines. USD/JPY closed Friday at 161.59, a level that has historically triggered Bank of Japan intervention — Japan reportedly spent ¥11.7 trillion on FX operations in May alone — meaning yen volatility is a live risk for Nikkei-exposed portfolios this week. USD/CNY fell 0.37% to 6.7667, reflecting PBOC management rather than genuine yuan strength, while the offshore yuan's stability masks a weak domestic demand picture flagged by China's June CPI easing to 1.0%. Korean won strengthened 0.47% to 1,498.87, partly on KOSPI outperformance (+2.52% Friday), but the week-on-week KOSPI loss of 7.6% underlines the fragility beneath Friday's bounce. Energy-importing Asia — Japan, Korea, India — remains most exposed to any re-escalation in the Strait of Hormuz, while Chinese technology names face a binary catalyst in this week's trade data and Q2 GDP print.