Asia open: Markets catch their breath as caution shadows the rebound

Markets in Asia are opening on Thursday, uncertain about which direction to take, likely taking a breather after a two-session surge that saw stocks recover from a geopolitical downturn that, in the end, left little damage. What appeared to be a global shock turned out to be more shadow than substance for equities—plenty of heat, not much burn. Now, with the adrenaline fading and the charts stabilising, traders are caught between caution and momentum, unsure which incoming storm to face next.

It was a storm that roared but landed softly, more bark than bite, and while stocks breathed a 48-hour sigh of relief, the mood remains twitchy. Traders are upright, but not exactly steady, like passengers stepping off a turbulent flight onto a tarmac that still feels like it’s swaying. The worst may have passed, but nobody’s ruling out another jolt.

After a two-day surge across global equities fueled by a geopolitical sigh of relief, traders now face a landscape that’s more fog than fireworks in the market. With the tariff trigger approaching and Powell playing policy “bad cop,” risk appetite is cooling just as quickly as it flared.

The U.S. session delivered more of a flatline than a pulse. The Nasdaq 100 and MSCI ACWI may have notched fresh record highs, but it felt more like a late-stage sugar rush than a sustainable charge. Breadth narrowed, volumes thinned, and under the hood, defensives quietly rotated back into favour. Even Powell’s testimony—expected to offer rate-cut breadcrumbs—turned out to be more of a holding pattern, with the Fed chief opting to “watch the smoke” before reacting to the fire.

Meanwhile, one sector keeping its chin up is European defence. NATO’s 5% GDP spending ambition lit a fuse under military-industrial names, even as U.S. defence stocks faded post-ceasefire. It’s a geopolitical barbell trade: a peace dividend on one side, and an arms buildup on the other.

Back to Asia: Thursday’s open faces a mixed hand. FX moves overnight suggest a bias toward stronger local currencies—potentially pressuring export-sensitive bourses—while the Nasdaq’s drift higher may offer a soft tailwind for tech-heavy indices like Korea and Taiwan. China remains the wildcard, especially as whispers grow around further stimulus. However, with trade tensions simmering again and Trump’s tariff deadline looming on July 9, investors are likely to remain in risk management mode.

Add to that the U.S. current account data, which showed FDI flows to the U.S. collapsing to a multi-year low, and you start to wonder: is the shiny narrative of Trump-era investment inflows more smoke than steel? Despite the chest-thumping about trillions pledged from Gulf states and Japan, the Q1 data paints a less flattering picture—FDI covering barely a tenth of America’s current account deficit. For Asia, this raises questions about the directionality of capital flows and the sustainability of the U.S. dollar if sticky capital starts to drift elsewhere.

In short, the rally’s euphoria has hit pause. Asia now trades in a narrow corridor between fading geopolitical headwinds, a potentially re-escalating trade war, and macro data that’s starting to fray around the edges. With Powell offering little cover and Middle East volatility on standby, expect traders to keep one hand on the ripcord. The air is calm, but the crosswinds are gathering.

New Oil order: Iran shock reveals crude’s fading geopolitical muscle

The past fortnight’s Middle East flare-up—capped by U.S. airstrikes on Iran’s nuclear facilities—should’ve been a classic oil shock. Instead, it exposed just how far the market has evolved, and how much geopolitical teeth have dulled in the age of shale supremacy.

Once upon a time, missiles over the Gulf meant $15–20 spikes in Brent, a mad dash for hedges, and central banks on red alert. But this time? A blip, a fade, and back to pre-conflict levels. The fireworks fizzled faster than a damp match.

This wasn’t just about risk being priced out—it’s about oil’s new geopolitical DNA. The U.S. is no longer a hostage to the Strait of Hormuz. After a decade-long shale renaissance, it’s the world’s largest producer and far less dependent on Gulf flows. That self-sufficiency has given Washington more geopolitical slack in the rope—and Trump used it, striking Iran without flinching at the old “oil shock” playbook.

And while Tehran may still posture, the leverage game is shifting. The Strait of Hormuz—the old chokehold on global energy—is no longer the trigger it used to be. Iran held off blocking it, Saudi Arabia stayed diplomatically disengaged, and oil traders largely shrugged.

For Gulf producers, this episode brought short-term relief but long-term headaches. The old model—conflict premium begets petrodollar windfall—is breaking down. A geopolitical jolt no longer guarantees a surge in oil revenue. That’s a problem for fiscal breakevens in Riyadh, Baghdad, and Abu Dhabi.

Trump’s comment urging China to buy Iranian crude—sanctions be damned—was less diplomacy than a backhanded effort to keep prices contained. Gasoline at $5 is still the ultimate political third rail in an election cycle.

Bottom line: the new oil geopolitics isn’t about disruption—it’s about resilience. The market has re-wired. U.S. shale sits on the global balance beam like a coiled spring, ready to respond. And unless a missile actually hits a pipeline or a tanker goes down in the Strait, expect future flare-ups to generate more headlines than price action.

This wasn’t a war premium—it was a war discount.