Markets Pause as Hormuz Talks Near a Decision

Market Brief: Markets Wait for Hormuz Clarity as Oil Volatility Returns

Middle East & Oil Markets: Diplomacy Meets Geopolitical Risk

Markets remain focused on developments surrounding the Strait of Hormuz as negotiations between Iran, Oman and the United States move closer to a potential framework agreement. Reports suggest that a deal could be announced soon, but conflicting signals from both sides continue to create uncertainty.

US Vice President J.D. Vance acknowledged that negotiations remain "messy" and could take time, although he expressed confidence that discussions would ultimately result in a favourable outcome for the United States. President Trump also reiterated his preference for diplomacy, stating that talks with Iran are progressing and that both sides remain engaged.

However, Iranian officials injected a note of caution into market sentiment. Iran's Deputy Foreign Minister stated that any understanding reached with Oman does not automatically mean the Strait of Hormuz will reopen. Instead, the agreement appears focused on shipping management and routing arrangements rather than unrestricted passage.

Additional geopolitical developments added to market uncertainty. Houthi forces announced another attack on a Saudi oil vessel in the Gulf of Aden, while reports emerged of missile activity near Bahrain and further military action in Lebanon. The UK Maritime Trade Operations agency also reported an incident involving a tanker near the Strait after explosions were heard during transit.

Taken together, the developments suggest that while diplomatic momentum is improving, geopolitical risks remain elevated.

Energy Markets: Crude Attempts Recovery

WTI Crude Oil experienced another volatile overnight session as traders attempted to balance progress in Hormuz negotiations against fresh regional security risks.

The benchmark briefly reclaimed the psychologically important $75 per barrel level after reports of the Houthi attack on Saudi-linked shipping. However, gains faded as investors refocused on the growing possibility that Iran and Oman are moving closer to an operational framework that would restore shipping traffic through the Strait.

Source: Tradingview.com

The market remains trapped between two competing scenarios.

Bullish Oil Scenario:

• Further attacks on shipping infrastructure
• Delays to Hormuz negotiations
• Escalation involving Iran, Saudi Arabia or regional proxies
• Extended uncertainty surrounding tanker traffic

Bearish Oil Scenario:

• Formal Hormuz agreement announced
• Mine-clearing and shipping routes operationalised
• Declining geopolitical risk premium
• Oil supply concerns continue to ease

For now, the market appears unwilling to commit aggressively in either direction until greater clarity emerges.

US Equities: Tech Weakness Offsets Positive Market Backdrop

The key market dynamic is the divergence between technology-heavy indices and the broader market. The Dow made fresh highs while the Nasdaq lagged due to weakness in Alphabet and AMD.

US equities delivered a mixed performance overnight.

The Dow Jones gained 0.22% and extended its record-setting run, while the S&P 500 slipped 0.17% and the Nasdaq fell 0.39%. Market breadth was slightly negative, suggesting investors are becoming increasingly selective despite generally supportive macro conditions.

Technology performance was mixed. Nvidia outperformed after reports emerged that SpaceX intends to build future AI infrastructure exclusively using Nvidia hardware. The news came at the expense of AMD, whose shares remained under pressure despite reporting solid earnings results.

Alphabet was another major drag on sentiment after reports suggested Chief Scientist Jeff Dean is leaving the company to establish his own artificial intelligence venture. The development reignited concerns regarding competition for top AI talent and ongoing disruption within the sector.

The earnings season continues to highlight an important theme: investors now expect more than strong revenue and earnings growth. Markets increasingly demand evidence that AI investments will translate into sustainable profitability.

Source: Forex.com (left: Dow Jones overnight gain, Right: NASDAQ overnight loss)

APAC Markets: Tech Drag Weighs on Asia

Asian markets largely followed the mixed US session.

Japan's Nikkei declined amid weakness across semiconductor and technology names. Kioxia was among the notable underperformers as chip-related selling pressure persisted.

South Korea's KOSPI underperformed once again, with SK Hynix falling sharply as volatility continued to weigh on investor confidence.

China delivered a more mixed picture. While mainland equities held relatively steady, trade tensions with the United States resurfaced. Chinese authorities announced additional export controls on drone technology while introducing countermeasures against several US entities.

Australia was the regional outperformer. The ASX 200 reached another record high after stronger-than-expected trade data showed exports rebounding sharply during June.

Exports rose 9.6% month-over-month, helping Australia post a trade surplus of AUD 1.93 billion versus expectations for a deficit.

FX and Bonds: Markets Await Next Data Catalyst

The US Dollar remained broadly stable overnight after recent weakness linked to softer economic data and declining Treasury yields.

EUR/USD consolidated gains near 1.1560 after benefiting from a weaker dollar environment, while GBP/USD continued to trade near the 1.3400 level in the absence of major UK-specific catalysts.

USD/JPY remained largely unchanged as both US and Japanese yields stabilised.

Bond markets also entered a consolidation phase. Treasury futures traded in narrow ranges as investors shifted their focus towards Friday's Nonfarm Payrolls report.

Recent data has shown signs of labour-market moderation. ADP employment growth slowed significantly, while employment components within the ISM Services report moved back into contraction territory. These developments have reinforced expectations that the Federal Reserve is likely to remain patient.

Fed officials Cook and Daly both reiterated support for holding rates steady while continuing to monitor incoming inflation and employment data.

Trade Tensions Re-Emerge

While investors remain fixated on the Middle East, trade developments are increasingly returning to the forefront.

The Trump administration is preparing to unveil the results of its Section 232 investigation into polysilicon imports. Reports suggest tariffs of at least 15% and pricing floors are under consideration as part of broader efforts to boost domestic production.

China responded by announcing additional countermeasures against several US entities while strengthening export restrictions on drone-related technologies.

The renewed tensions are unlikely to become the dominant market theme immediately, but they represent a growing macro risk for technology, semiconductor and industrial supply chains.

Key Events for Today's Session

Economic Data

• Swedish CPI (July)
• German Factory Orders (June)
• US Challenger Job Cuts
• US Weekly Initial Jobless Claims
• Atlanta Fed GDPNow Update

Central Banks

• Czech National Bank Rate Decision
• Banxico Rate Decision
• Fed's Daly
• Fed's Musalem

Earnings

• ConocoPhillips
• Rheinmetall
• Merck
• Diageo
• Fiserv

Philip J Papageorgiou - Head of Investment Research

Find him on X (x twitter) - PhilipForexCom