Oil prices increased following reports of three ships on fire in the Gulf of Oman, near the Strait of Hormuz. This incident raised market concerns, and the price of WTI crude rose from about $71 to $72.15. US Secretary of State Rubio left the G7 early, and Trump planned an early departure as well after opposing a joint statement on the Israel-Iran conflict.

The People’s Bank of China set the USD/CNY central rate at 7.1746, aligning closely with an estimate of 7.1820. Japan’s finance minister, Kato, voiced concerns about oil supply and prices, but noted no immediate talks with Bessent. Tensions rose as the White House denied attacking Iran, while the Chinese embassy in Israel advised its citizens to leave.

Market Reactions

Markets initially reacted with a risk-averse sentiment, leading to a dip in S&P 500 futures from 6031 to around 6021. Later, they regained ground after a US official clarified there are no offensive plans against Iran. The Bank of Japan is expected to hold rates steady as USD/JPY traded above 145.00. Although major currencies stayed broadly stable, the yen saw a noticeable decline.

We’ve just seen a quick flicker in commodity-linked fear, notably centred around the Gulf of Oman, where three ships were reported ablaze near the Strait of Hormuz. That location matters—it handles roughly a fifth of the world’s oil supply, and any obstruction tends to rattle traders. Prices for WTI crude responded as you’d expect, pushing up nearly $1.20 in a tight window, stressing just how quickly these geopolitical sparks can ignite market momentum.

Rubio’s early departure from the G7, along with Trump pressing to leave ahead of schedule after diverging on a statement about the Israel-Iran conflict, mirrors intensifying divides at the diplomatic level. When diplomats leave early, we interpret it as a sign that consensus is out of reach. Markets, particularly those tied to risk or global trade, read that as defensive action and often tilt that way themselves. Traders took the cue—S&P 500 futures slipped about 10 points as fear crept in, despite a soft rebound after American officials walked back any aggressive military stance.

Currency and Policy Implications

Currency positioning was, for the most part, steady. The yuan’s fix at 7.1746 by the PBOC kept things orderly, as it lined up closely with what models had predicted. There’s no evidence of heavy central bank activism from Beijing, which suggests policymakers are content to guide expectations rather than aggressively move the needle. If that strategy holds, we’re less likely to face abrupt currency shocks on the CNY front—barring outside surprises.

The yen took a notable hit though, sliding even with expectations that Japan’s central bank will stay on hold. Above 145.00 against the dollar is territory that previously attracted attention from Tokyo officials. Kato voiced concern about energy costs but confirmed there were no active consultations—an important hint that currency support is not imminent. The lack of action keeps pressure on the yen, especially if oil prices keep lifting global import costs.

We’re also watching the kind of mixed signals that tend to arise in these moments—embassies urging citizens to leave, coupled with statements from officials aimed at calming nerves. The Chinese embassy in Tel Aviv advised evacuation, while Washington quickly denied taking any military action. This sort of duality often opens up windows for tactical positioning, especially where volatility premiums are concerned.

In sum, we’re seeing unease enter the markets, particularly through energy and currencies closely tied to trade balances or capital flows. With futures recovering modestly and foreign exchange remaining mostly range-bound apart from the yen, the current setup invites selective exposure, particularly through asymmetrical risks like oil spreads or short-term volatility in East Asia currency pairs. Let the data breathe, but stay nimble.

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