Oil gains falter despite rising Middle East tensions

Energy markets react cautiously to escalating Iran-Israel conflict

Oil prices surged at the open on Monday following an Israeli strike on a key Iranian gas processing facility over the weekend. The site, located in the Persian Gulf and linked to offshore oil infrastructure, sparked concerns about broader disruptions to regional energy supply. Brent briefly rose above $84, and WTI crossed the $76 threshold, while natural gas jumped past its 100-day moving average.

But momentum faded quickly. By midday, both oil and gas gave back most gains, suggesting that traders remain cautious despite the elevated risk backdrop. The damage appeared limited to Iran’s domestic supply, and the absence of further escalation in shipping corridors helped contain broader fears.

Still, the proximity of these strikes to critical offshore infrastructure raised fresh alarms about the vulnerability of oil supply routes, especially the Strait of Hormuz — a chokepoint for one-third of the world’s oil shipments.

Markets weigh geopolitical risk against economic headwinds

The subdued follow-through in oil may reflect a broader concern: higher energy prices could eventually act as a drag on global growth. Some observers also note that a sustained price rise might incentivize US shale producers to boost output, limiting long-term price upside.

Despite the geopolitical flare-up, safe-haven buying was short-lived. Gold opened at record levels but retreated alongside the Swiss franc, while the US dollar managed modest gains as risk-off sentiment pushed investors toward liquidity.

Meanwhile, equity futures in the US turned slightly positive after Friday’s selloff, led by energy stocks, while European futures remained under pressure.

Asia mixed; Japan supported by defense links, China pressured by data

Asian markets traded mixed. Japan’s Nikkei rose nearly 1% as a weaker yen and defense collaboration talks with the EU buoyed investor sentiment. In contrast, Chinese stocks fell after May’s economic data painted a mixed picture. Retail sales exceeded expectations with a 6.4% year-on-year jump, but industrial production and fixed investment disappointed, reflecting the toll of tariffs and weak external demand.

The Hang Seng slipped below the 24,000 level, as concerns about export softness and trade uncertainty weighed on sentiment.

Central bank superweek ahead: Fed, BoE, SNB, BoJ in focus

Investors now look to a series of central bank meetings that could shape the outlook for rates and currencies into the second half of the year.

• Bank of Japan (Tuesday): The BoJ is expected to hold rates and reduce the pace of tapering. With mounting global uncertainties and fragile domestic inflation, policymakers are likely to stay dovish, keeping the yen under pressure and supporting local equities.
• Federal Reserve (Wednesday): The Fed is expected to keep policy steady, with no rate cut likely before September. Officials are likely to stress patience amid tariff and inflation risks, buoyed by strong labor market data and a jump in consumer sentiment.
• Bank of England (Thursday): The BoE is also expected to hold rates, even as concerns grow about fiscal sustainability. Gilts have stabilized for now, but markets remain wary of further political pressure on the UK budget.
• Swiss National Bank (Thursday): The SNB is widely expected to cut its rate to 0%, aiming to curb the franc’s strength and stimulate growth. However, Swiss equities continue to lag, and unresolved US trade tensions are weighing on investor sentiment.