Key Takeaways
- U.S. military forces conducted fresh overnight strikes on Iranian military sites and mine-laying boats to neutralize threats to the Strait of Hormuz, as President Trump vowed that "nobody's going to control" the international waterway.
- Gold (GC=F) prices have plummeted more than 15% since the conflict began in late February, as the closure of the strategic energy route fuels expectations that central banks will keep interest rates "higher for longer" to combat energy-driven inflation.
- Norway has officially moved to join France’s nuclear umbrella, signaling a historic shift toward European strategic autonomy and a move away from traditional reliance on the United States for security.
- Foreign investors poured over ¥2.4 trillion into Japanese assets during the week of May 22, with massive inflows into both Japanese bonds (¥1346.0B) and stocks (¥1080.4B) despite a slight edge down in Nikkei 225 (NI225) futures.
- President Trump rejected any potential sanctions relief for Iran, maintaining a "no money, no nothing" policy while warning regional allies like Oman to cooperate on shipping security or face military consequences.
US Strikes and Trump's Hardline Rhetoric
The U.S. military launched a series of "self-defense strikes" overnight against Iranian targets in southern Iran, specifically targeting missile batteries and speedboats that officials claimed posed an immediate threat to commercial navigation. A U.S. official confirmed to Reuters that the targeted sites were actively preparing to disrupt traffic in the Strait of Hormuz, a critical chokepoint that handles approximately 20% of the world's oil and liquefied natural gas.
Speaking at a Cabinet meeting, President Donald Trump dismissed reports of a potential power-sharing deal over the waterway, asserting that the strait must remain open to all international shipping. Trump explicitly warned that the U.S. would not tolerate Iranian control over the passage and issued a stern warning to Oman, stating the nation must "behave" or face military action. The President expressed dissatisfaction with the progress of peace talks, emphasizing that there would be "no money, no nothing" in terms of sanctions relief until U.S. demands are met.
Markets React to "Higher for Longer" Inflation Fears
The escalation has sent shockwaves through the fixed-income and commodities markets. U.S. 10-Year Treasury Futures fell 4 ticks, while 30-Year Futures dropped 6 ticks as the prospect of renewed strikes and a prolonged blockade of the Strait of Hormuz drove up inflation expectations. Investors are increasingly betting that the Federal Reserve and other global central banks will be forced to maintain elevated interest rates to counter the inflationary shock of surging energy prices.
Gold (GC=F) has been a primary victim of this shifting macro environment, falling nearly 15% since the conflict erupted three months ago. While bullion often acts as a safe haven, the pressure from rising real yields and a strong U.S. dollar has outweighed geopolitical risk premiums. Spot gold fell over 1% on Wednesday to trade near $4,450 per ounce, its lowest level in two months, as stalled negotiations dampened hopes for a swift de-escalation.
European Defense Shift and Japan Capital Inflows
In a major geopolitical realignment, Norway announced it will join France’s "forward nuclear deterrence" initiative. This move marks a significant departure for the traditionally Atlanticist nation, reflecting growing European anxiety regarding the consistency of U.S. security guarantees. The agreement, signed in Paris by French President Emmanuel Macron and Norwegian Prime Minister Jonas Gahr Støre, aims to bolster European strategic autonomy amid the ongoing regional instability.
Meanwhile, Asian markets showed a significant divergence in capital flows. Data for the week ending May 22 revealed that foreign investors are aggressively buying Japanese assets, with net purchases of Japanese Bonds reaching ¥1346.0B and Japanese Stocks hitting ¥1080.4B. Despite these massive inflows, the Nikkei 225 (NI225) futures edged down 0.1% in early trade, while 10-year JGB futures fell 0.19 point, reflecting the broader global trend of rising yields and cautious equity sentiment.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.