The dominant macro shock overnight was a sharp escalation in the US-Iran conflict, with fresh strikes exchanged in the Strait of Hormuz and Iranian forces retaliating against US bases in Bahrain. President Trump declared the Memorandum of Understanding with Tehran 'is over,' shattering ceasefire optimism and sending Brent Crude surging 6.76% to $79.17 and WTI up 5.96% to $74.64. The IMF simultaneously cut its 2026 global growth forecast to 3.0% from 3.1%, projecting oil-driven inflation at 4.7% and warning that its baseline assumes the Strait of Hormuz reopens later this month — an assumption now seriously in doubt. Fed minutes from the June meeting under new Chair Kevin Warsh revealed a divided committee, with some members open to rate hikes, cementing expectations of a higher-for-longer US rate environment as CPI runs at 4.2% annually.
The cross-asset picture is unambiguously risk-off: US Treasuries sold off with the 10-year yield rising 7bp to 4.55% and the 30-year breaking above 5.05%, while the VIX climbed 4.77% to 16.9, reflecting renewed uncertainty. Equity markets were broadly weaker — the FTSE 100 fell 1.66%, the DAX 1.37%, and the Nikkei 225 slumped 2.12% — with the KOSPI the standout laggard at -4.91%. For Asia-Pacific markets opening today, the oil spike is stagflationary: it pressures central banks including the RBA to maintain tight policy while simultaneously squeezing consumer and corporate margins. The AUD held relatively firm at 0.6933 on commodity currency tailwinds from oil, but ASX Materials and Energy sectors face a sharp divergence, with energy producers lifted and miners facing headwinds from weaker base metals including aluminium (-5.40%), silver (-3.42%), and copper (-0.81%).