Asian markets rallied on ceasefire expectations, with the Nikkei 225 above 62,000 for the first time and up over 5%. US futures rose, the US Dollar Index (DXY) fell towards 97.60, and equities set fresh intraday records.
West Texas Intermediate (WTI) Crude Oil dropped below $90 and briefly hit the $87 area. Attention was on Iran’s expected response to a US proposal sent via Pakistani mediators.
Ceasefire Talks Drive Early Risk Rally
The draft memorandum would end the war and open a 30-day period to address nuclear enrichment, frozen Iranian assets, and security in the Strait of Hormuz. President Donald Trump referred to “very good talks”.
Later, markets reversed as conditions and warnings resurfaced, including Trump’s earlier threat of strikes “at a much higher level and intensity”. Reports also noted Iran’s condition of lifting the US naval blockade.
The IRGC continued issuing notices thanking captains for “complying with Iran’s Strait of Hormuz regulations”. Project Freedom escorts remained paused, while talk grew of a rapid restart.
US petrol prices were near $4.54 a gallon, the highest since July 2022. After hawkish Fed remarks from Collins and Hammack, DXY moved above 98, WTI rebounded above $98, and the S&P 500 turned red.
Positioning For Volatility Amid Data And Geopolitics
Friday’s Nonfarm Payrolls consensus is 62K versus 178K previously.
We remember the Iran ceasefire head-fake in 2025, when the market priced in peace only to have it evaporate within hours. That event saw West Texas Intermediate crude plunge toward $87 before rocketing back above $98 in a single session. This whiplash taught us that headline-driven moves are temporary, while underlying geopolitical tensions and economic data are what truly matter.
With WTI crude now hovering near $95 a barrel, that 2025 reversal is a critical reminder of the embedded risk in energy markets. Around 21% of the world’s daily oil consumption still passes through the Strait of Hormuz, making any flare-up extremely consequential for prices. Traders should be cautious about being short volatility, as buying call options on crude remains a sound hedge against a sudden escalation.
We see a similar setup in equities, with the S&P 500 pushing record highs near 5,800, just as it did before fading into the red back then. The US Dollar Index is firm above 105, reflecting a persistent bid for safety that contradicts the optimism seen in stocks. This suggests that buying cheap protection, such as VIX calls or put options on major indices, is a prudent strategy to guard against another sentiment-driven downturn.
The Federal Reserve’s stance is also a familiar challenge, much like the hawkish speeches were last year. With core inflation proving sticky around 3.4% and the Fed funds rate holding firm, the market is extremely sensitive to signs of economic weakness. Look for increased volatility around next week’s inflation data, as any surprise could force a major repricing of risk assets.
