Key Takeaways
- Brent crude prices plummeted over 7% following President Trump’s announcement that he called off a massive strike on Iran, opting instead for diplomatic talks starting Monday.
- U.S. Treasury Secretary Scott Bessent confirmed the U.S. has joined Japan in a rare coordinated FX intervention, signaling a "firm floor" for the yen to combat its significant undervaluation.
- Ukraine intensified its energy war against Russia, launching successful drone strikes against three major oil refineries in the Bashkortostan region and a strategic airbase in Saratov.
- Global risk appetite improved, with S&P 500 (SPY) futures rising 0.4% and the Australian dollar gaining on news of a potential deal to reopen the Strait of Hormuz.
- Australia’s manufacturing sector showed resilience, as the final July PMI rose to 52.0, indicating a steady expansion despite global inflationary pressures.
Trump De-escalation Triggers Oil Collapse
Energy markets experienced a sharp sell-off late Sunday after President Donald Trump revealed he had halted a planned military strike on Iran at the request of Middle East allies, including Saudi Arabia. Brent Crude (BRENT) dropped more than 7% at the open, while West Texas Intermediate (WTI) fell 6.7% to $78.98 a barrel. The move comes as the administration prepares for fresh talks on Monday aimed at reaching a deal to reopen the Strait of Hormuz, a critical artery for global oil and LNG shipments.
Investors reacted with optimism to the shift toward diplomacy, which could alleviate months of supply-side constraints that recently pushed oil prices toward the $100 mark. Market analysts suggest that a successful reopening of the waterway would significantly lower global shipping costs and dampen the inflationary pressures currently weighing on central bank policies.
U.S. and Japan Launch Historic Yen Intervention
In a major shift in currency policy, U.S. Treasury Secretary Scott Bessent announced that the Treasury will "not hesitate" to join additional coordinated interventions to curb "disorderly" swings in the Japanese yen. Bessent strongly backed Japan’s recent decisive actions, noting that Friday’s joint operations were effective in addressing the yen's "significant undervaluation."
Japanese Finance Minister Satsuki Katayama is expected to formally announce as early as Monday that both governments are working in tandem. This marks the first significant bilateral coordination of this scale in 15 years. The yen edged higher in early trading as markets braced for further joint action, with the U.S. Treasury maintaining "close communication" with the Bank of Japan (BOJ) and the Ministry of Finance (MOF).
Ukraine Strikes Deep Into Russian Energy Infrastructure
While Middle East tensions showed signs of cooling, the conflict in Eastern Europe escalated as Ukraine targeted Russia's industrial heartland. The Ukrainian military confirmed it struck an oil refinery and airbase in the Saratov region, as well as an oil depot in Kaluga. Most notably, the SBU hit infrastructure at three refineries in the Bashkortostan region, nearly 1,600km from the Ukrainian border.
President Volodymyr Zelenskiy also reported a successful strike on the sanctioned Russian container ship Yanina, which has a capacity exceeding 100,000 tonnes. These strikes represent a strategic effort by Kyiv to degrade the logistical and financial pillars of the Russian military-industrial complex, specifically targeting facilities that process millions of tonnes of crude annually.
Australia Manufacturing Gains Momentum
Economic data from the Asia-Pacific region provided a positive backdrop for risk-sensitive assets. Australia’s Manufacturing PMI final reading for July came in at 52.0, up from the previous estimate of 51.7. This indicates a robust expansion in the sector, driven by a recovery in new orders and improved domestic demand. The Australian Dollar (AUD) led gains among major currencies, further supported by the broader "risk-on" sentiment following the de-escalation of U.S.-Iran tensions.
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.