Brent crude for October delivery dropped to $81.55 a barrel, while West Texas Intermediate fell 5.7% to $79.87. The retreat in energy markets alleviated immediate inflation concerns, pushing the benchmark 10-year Treasury yield down four basis points to 4.69%. Gold advanced 0.4% to $4,064.07 an ounce, and European equity futures pointed higher, though Asian stocks lagged due to a sharp selloff in South Korean semiconductor equities.
US-Iran Talks Reshape Energy Markets
The energy sector’s sharp pivot followed Trump’s decision to call off a planned massive attack on Iran, opting instead for diplomacy at the behest of Middle East allies like Saudi Arabia. The conflict, now in its sixth month, had previously squeezed supply and driven up fuel costs, unsettling investors and stoking fears of another inflation spike.
“If we get something concrete on a peace deal, or more importantly the reopening of the strait of Hormuz, then we could see some strong relief rallies across the market,” said Nick Twidale, chief market analyst at AT Global Markets. “For now it feels we will continue to see volatility across different markets, especially as AI trade remains the dominant theme for equities.”
Yen Intervention and Currency Dynamics
The Japanese yen advanced as much as 1.4% to 155.23 per dollar amid ongoing speculation of coordinated yen intervention. Japan’s Ministry of Finance confirmed a yen-buying operation on July 31, executed in coordination with the US Department of Treasury to counter “disorderly” movements, according to Treasury Secretary Scott Bessent.
Strategists suggest the US Treasury may be using euros rather than dollars to fund its yen purchases, avoiding a direct weakening of the greenback and casting doubt on its strong dollar policy. Bloomberg macro strategist Andre de Silva noted that rising Japanese yields are already encouraging capital to return home, and FX intervention creates an additional channel for Treasury demand to weaken as reserve assets are deployed.
“For a week probably, we can see more choppiness and probably more temporary yen strengthening,” said Julia Wang, North Asia chief investment officer at Nomura International. “But we do think this does not change the actual direction for dollar-yen and probably will continue higher once the intervention is behind us.”
The Bloomberg Dollar Spot Index fell 0.2%, with the yen contributing the most to that move. The euro held steady at $1.1536, the British pound was little changed at $1.3474, and the offshore yuan traded flat at 6.7523 per dollar. Cryptocurrencies declined, with Bitcoin falling 1.1% to $62,735.65 and Ether dropping 1.3% to $1,857.35.
Asian Stocks and AI Volatility
While US and European futures rose, Asian stocks declined. The MSCI Asia Pacific Index fell 0.6%, with Japan’s Topix dropping 1.1%. South Korea’s Kospi Index, a key bellwether for AI investments, plunged more than 5% after surging a record 18% on Friday. Samsung Electronics and SK Hynix both tumbled about 8%, offsetting gains in Japanese chipmakers like Renesas Electronics and Kioxia Holdings.
The AI sector saw mixed reactions elsewhere. Alibaba Group Holding surged 6.5% in Hong Kong following the release of its new flagship AI model, with performance claims putting it alongside global leaders. China’s DeepSeek also rolled out a public beta API for its V4 Flash model, touting advancements in agentic abilities.
US futures indicated a positive open, with S&P 500 futures rising 0.6% as of 6:54 a.m. London time and Nasdaq 100 futures advancing 0.8%. Euro Stoxx 50 futures also rose 0.8%. Australia’s S&P/ASX 200 managed a 0.3% gain, while Hong Kong’s Hang Seng remained little changed and the Shanghai Composite fell 0.7%.
In bond markets, Japan’s 10-year yield advanced three basis points to 2.820%, while Australia’s 10-year yield was little changed at 4.93%.
What Happens Next
Market participants will closely monitor the upcoming US-Iran talks for tangible signs of a ceasefire and the reopening of critical shipping lanes. Any breakdown in negotiations could rapidly reverse the drop in oil prices and reignite inflation fears, sending Treasury yields back to recent highs.
In the currency space, traders remain on high alert for further coordinated yen intervention to support the Japanese currency. However, strategists warn that intervention effects may be temporary, with the dollar-yen pair likely to resume its upward trajectory once official support subsides. Meanwhile, the violent swings in semiconductor equities suggest that the AI trade will continue to drive sector-specific volatility, keeping the Nasdaq 100 and Asian indices on edge in the near term.
— Hiro Tanaka, markets desk, AXO News