Middle East Conflict Ignites Markets: Oil and Gold Surge, Stocks Dive

Economic

Middle East Situation

Summary:

The sudden Israeli airstrike on Iran has triggered a dramatic spike in global oil and gold prices while plunging stock markets into the red, underscoring growing geopolitical instability and economic vulnerability in mid-2025....

Oil and Gold Prices Soar on Geopolitical Shock

The surprise escalation in Middle East tensions—marked by a large-scale Israeli strike on Iran—has sent immediate shockwaves through global commodity markets. In early Asian trading on June 13, Brent crude spiked by 12.2% to $77.77 per barrel, while WTI crude surged by 12.6% to $76.61. This marks one of the most significant intraday increases in recent months, driven by fears of supply disruptions in a region that remains critical to global energy flows.

Gold followed suit as investors rushed toward safe-haven assets. The precious metal climbed to nearly $3,425 per ounce, reaching its highest point in five months. This surge is fueled not only by geopolitical risk but also by growing speculation that the U.S. Federal Reserve may soon pivot toward interest rate cuts, which would enhance gold’s appeal in a low-yield environment.

Equities Sink Across Asia as Risk Sentiment Deteriorates

The equity markets reacted with immediate concern. Japan’s Nikkei 225 tumbled by 1.3% to 37,665.93 by late morning. Meanwhile, Hong Kong’s Hang Seng Index fell 0.8% to 23,848.26, and China’s Shanghai Composite slid to 3,376.40. This region-wide sell-off reflects heightened aversion to risk and the expectation that prolonged conflict could significantly disrupt supply chains and investor confidence.

Vietnam’s domestic stock market was not spared either. As of 10:45 a.m., the VN-Index dropped 5.68 points (0.43%) to 1,317.31, and the HNX-Index lost 1.51 points (0.66%) to 228.42, mirroring regional turbulence.

Hormuz Strait in Focus: Potential Macro Game-Changer

A key concern now centers around the Strait of Hormuz—a critical chokepoint responsible for approximately 20% of global oil shipments. According to SPI Asset Management’s Stephen Innes, if the strait is compromised, oil prices could spike to $90 per barrel or higher. JPMorgan has issued an even starker warning, suggesting that oil could breach $130 per barrel in the worst-case scenario involving a full-scale regional war.

The outcome hinges largely on Iran’s next move. A restrained response may allow markets to gradually recover. However, any retaliatory actions targeting Israeli or U.S. military bases in the region could escalate the crisis dramatically, potentially redefining the macroeconomic outlook for the remainder of 2025.

U.S. Role and Strategic Ambiguity

While the U.S. government has stated that it was not involved in Israel's strike, Iranian officials have warned that American military assets could become targets if a broader conflict unfolds. This raises the risk of secondary sanctions, proxy escalations, and renewed disruptions in energy markets—all of which could feed into inflationary pressures at a time when central banks, including the Fed, are contemplating easing cycles.

The convergence of geopolitical flashpoints, inflationary uncertainty, and monetary policy crossroads marks a volatile juncture for global markets. If tensions escalate, safe-haven assets like oil and gold are likely to outperform, while equities face sustained downside pressure. As the situation unfolds, investor attention will remain sharply focused on energy logistics, Fed rhetoric, and the geopolitical chessboard of the Middle East.

Source: CNBC

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James Whitman

Political

Middle East Situation

Alarmed by an intelligence assessment that Iran will be able to produce nuclear weapons within months if not weeks, Israel has launched a massive air campaign aiming to destroy the country’s nuclear program.

Israel’s air strikes hit Iran’s main nuclear enrichment facility at Natanz, as well as its air defences and long-range missile facilities.

Among the dead are Hossein Salami, the chief of Iran’s powerful Revolutionary Guards Corps; Mohammad Bagheri, the commander-in-chief of the military; and two prominent nuclear scientists.

Iranian Supreme Leader Ayatollah Ali Khamenei has promised “severe punishment” in response. Iran could potentially target Israel’s own nuclear sites and US bases across the Persian Gulf. Israel claimed Iran launched 100 drones towards it just hours after the attack.

The Middle East is yet again on the precipice of a potentially devastating war with serious regional and global implications.

Stalled nuclear talks

The Israeli operations come against the backdrop of a series of inconclusive nuclear talks between the United States and Iran. These negotiations began in mid-April at President Donald Trump’s request and aimed to reach a deal within months.

Israeli Prime Minister Benjamin Netanyahu opposed the talks, pressing for military action instead as the best option to halt Iran’s nuclear program.

The diplomatic efforts had stalled in recent weeks over Trump’s demand that Iran agree to a zero-uranium enrichment posture and destroy its stockpile of some 400 kilograms of enriched uranium at a 60% purity level. This could be rapidly enriched further to weapons-grade level.

Tehran refused to oblige, calling it a “non-negotiable”.

Netanyahu has long pledged to eliminate what he has called the Iranian “octopus” — the regime’s vast network of regional affiliates, including Hamas in Gaza, Hezbollah in Lebanon, the regime of former Syrian leader Bashar al-Assad, and the Houthi militants in Yemen.

Following Hamas’ attack on Israel on October 7 2023, Israel’s military has considerably degraded these Iranian affiliates, one by one. Now, Netanyahu has now gone for beheading the octopus.

Trump keeping his distance

Netanyahu has in the past urged Washington to join him in a military operation against Iran. However, successive US leaders have not found it desirable to ignite or be involved in another Middle East war, especially after the debacle in Iraq and its failed Afghanistan intervention.

Despite his strong commitment to Israel’s security and regional supremacy, Trump has been keen to follow this US posture, for two important reasons.

He has not forgotten Netanyahu’s warm congratulations to Joe Biden when he defeated Trump in the 2020 US presidential election.

Nor has Trump been keen to be too closely aligned with Netanyahu at the expense of his lucrative relations with oil-rich Arab states. He recently visited Saudi Arabia, Qatar and the United Arab Emirates on a trip to the Middle East, while bypassing Israel.

Indeed, this week, Trump had warned Netanyahu not to do anything that could undermine the US nuclear talks with Iran. He has been keen to secure a deal to boost his self-declared reputation as a peace broker, despite not having done very well so far on this front.

But as the nuclear talks seemed to be reaching a dead end, Netanyahu decided now was the moment to act.

The Trump administration has distanced itself from the attack, saying it had no involvement. It remains to be seen whether the US will now get involved to defend Israel if and when Iran retaliates.

What a wider war could mean

Israel has shown it has the capacity to unleash overwhelming firepower, causing serious damage to Iran’s nuclear and military facilities and infrastructure. But the Iranian Islamic regime also has the capability to retaliate, with all the means at its disposal.

Despite the fact the Iranian leadership faces serious domestic issues on political, social and economic fronts, it still has the ability to target Israeli and US assets in the region with advanced missiles and drones.

It also has the capability to close the Strait of Hormuz, through which 20%–25% of global oil and liquefied natural gas shipments flow. Importantly, Iran has strategic partnerships with both Russia and China, as well.

Depending on the nature and scope of the Iranian response, the current conflict could easily develop into an uncontrollable regional war, with none of the parties emerging as victor. A major conflict could not only further destabilise what is already a volatile Middle East, but also upend the fragile global geopolitical and economic landscape.

The Middle East cannot afford another war. Trump had good reasons to restrain Netanyahu’s government while the nuclear negotiations were taking place to see if he could hammer out a deal.

Whether this deal can be salvaged amid the chaos is unclear. The next round of negotiations was due to be held on Sunday in Oman, but Iran said it would not attend and all talks were off until further notice.

Iran and the US, under Barack Obama, had agreed a nuclear deal before — the Joint Comprehensive Plan of Action. Although Netanyahu branded it “the worst deal of the century”, it appeared to be holding until Trump, urged by Netanyahu, unilaterally withdrew from it in 2018.

Now, Netanyahu has taken the military approach to thwart Iran’s nuclear program. And the region — and rest of the world — will have to wait and see if another war can be averted before it’s too late.

Source: Theedgemarkets

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Economic

Economic Signals Shift from Inflation to Growth Risks

For months, the Federal Reserve has prioritized inflation control, maintaining interest rates in the 4.25%–4.5% range since December 2024. However, with recent data pointing to softer-than-expected inflation and a gradually deteriorating labor market, the justification for maintaining elevated rates is beginning to erode. The latest core PCE readings — at 2.8% over the past three months — represent the lowest trend in four years, suggesting that inflation pressures may be subsiding more sustainably than previously believed.

The reimposition and escalation of tariffs under current U.S. trade policy have introduced fresh complications. In May alone, the U.S. Treasury collected an additional $15 billion in import duties compared to February, equivalent to about 3% of total consumer goods spending. Interestingly, retail prices for commonly affected goods, such as clothing and new vehicles, did not spike — and in some cases even declined. This suggests that while foreign producers aren’t lowering export prices and domestic wholesalers are squeezed, retailers are adjusting elsewhere, potentially through rising logistics costs rather than consumer-facing price increases.

Though the inflationary shock from tariffs is largely considered “one-off,” its pass-through effects may linger. Economists expect the full weight of these price distortions and confidence shocks to become more apparent in the months ahead. However, unless tariffs reshape long-term inflation expectations, these cost pressures are unlikely to derail the Fed’s path toward policy easing.

Labor Market Strains Intensify

More pressing is the gradual weakening in U.S. employment data. Since January, the unemployment rate has inched up by 0.25 percentage points and could reach 4.6% by Q4 if the trend continues. While monthly job additions remain positive — 139,000 new jobs were reported in May — analysts caution this figure may be revised downwards, as was the case for earlier months. Private-sector estimates, like those from ADP, showed a far more modest increase of just 37,000 jobs.

Meanwhile, new claims for unemployment benefits have risen sharply in recent weeks, suggesting that layoffs may be spreading beyond the public sector. Although the stock market remains elevated — an unusual occurrence during early recession signals — uncertainty surrounding trade policy may be causing firms to restrain hiring activity.

Fed’s Policy Dilemma and Market Expectations

As these dynamics unfold, the Fed's next steps become increasingly nuanced. Interest rates currently remain 0.5 to 1.5 percentage points above the estimated neutral level — the point where monetary policy is neither expansionary nor contractionary. If inflation is genuinely moderating and job market indicators continue to deteriorate, the rationale for rate cuts grows stronger.

Although the Fed’s upcoming policy meeting is unlikely to produce immediate action, analysts expect a shift in tone. Policymakers may begin to signal that risks have transitioned from overheating to underperformance — a prelude to monetary easing. With fiscal policy still in limbo and tariff-related uncertainty clouding forward guidance, monetary flexibility may be the most viable tool for supporting growth.

The convergence of tariff-induced uncertainty, fragile labor trends, and declining inflation momentum marks a turning point for U.S. economic policy. While the Fed remains cautious, the case for rate cuts is strengthening. Unless the economy receives a new jolt of fiscal stimulus or geopolitical clarity, the next stage of U.S. monetary policy may involve not just pausing, but pivoting.

Source: WSJ

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Economic

Diverging Fortunes: Macro Flexibility vs. Trend Rigidity

The hedge fund landscape in 2025 paints a tale of two strategies. On one end, discretionary macro funds — known for their agility and human-guided decision-making — have weathered market turbulence with relative success, posting gains of up to 24% in some cases. On the other, systematic trend-following funds, reliant on algorithms to detect persistent market movements, have stumbled badly, many registering losses of 15% to 18% year-to-date.

This divergence stems from a key issue: trend-followers require sustained market directionality, which has been scarce. The year has been marked by sharp reversals — triggered by political shocks such as Trump’s sudden Liberation Day tariff — leaving algorithms whipsawed by inconsistent trends and unanchored volatility.

Data Breakdown and Key Players

According to data from Societe Generale and PivotalPath, systematic funds have plunged over 11% on average through May, with top funds like Systematica, Transtrend, and Aspect Capital recording even steeper declines. Assets that contributed most to underperformance include U.S. Treasuries, the Australian dollar, Japanese government bonds, and surprisingly, even commodities like coffee.

By contrast, discretionary macro funds have posted strong numbers. EDL Capital leads the pack with a 24% gain, followed by Rokos Capital Management at 9.5%. While Brevan Howard’s flagship fund remains down slightly, its Alpha Strategies gained over 4%. These funds have benefited from diversified positioning and swift reallocation capabilities, capitalizing on short-lived rallies and currency shifts — including the euro and yen in May.

Risk Hedging and Portfolio Buffering

Importantly, some large hedge funds are mitigating systemic risks by diversifying across both macro and trend strategies. Man Group exemplifies this dual approach: its trend-based AHL Alpha Programme is down 10.6% for the year, but its multi-strategy fund has delivered a 5.4% gain. AQR Capital, managing $135 billion, mirrored this balance — its Apex multi-strategy fund rose 10.6%, while even its Helix trend strategy performed atypically well, up 7% despite being flat in May.

These mixed performances show the value of strategic diversification. Macro funds serve as offense, exploiting dislocations in the market, while trend funds often function as defense, smoothing out volatility in more stable conditions.

Philosophical Divide: React vs. Restrain

The underlying difference between these strategies is not just mechanical — it's philosophical. Macro managers emphasize responsiveness and judgment. Trend followers, in contrast, prioritize consistency and probabilistic discipline. As Ken Tropin of Graham Capital explained, it is often more prudent to trust long-term models than to “overreact” during sudden trend reversals. However, when markets are dominated by noise and policy shocks, this principle can prove costly in the short run.

Tactical Agility Prevails, But the Debate Persists

While discretionary macro funds have taken the lead in 2025’s turbulent environment, the long-term utility of systematic trend strategies shouldn’t be dismissed. Over decades, both styles have delivered strong returns — macro at 9.6% annually since 2001, and managed futures at 7.2%.

Still, the current moment belongs to the nimble. In markets ruled by political uncertainty and abrupt shifts, hedge funds that can swiftly adapt — not just follow — are those capturing alpha. Whether this trend persists or reverses may depend less on market mechanics and more on the continued unpredictability of global leaders.

Source: Reuters

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Economic

China–U.S. Trade War

Global Strategy Overpowers Geopolitical Risk

Insta360’s record-setting IPO on the Shanghai STAR Market this week underscores a bold shift among Chinese firms: geopolitical tensions are no longer deterring global expansion. The camera brand, which now counts the U.S. as a key market equal in revenue to China and Europe, exemplifies how tech-forward Chinese companies are pursuing foreign consumer bases with increased confidence and autonomy.

Co-founder Max Richter’s comments dismissing political concerns and emphasizing R&D investment point to a mindset centered around product relevance and market proximity rather than political retreat. With its Los Angeles office focused on local services and marketing, Insta360 is not just exporting cameras — it’s embedding itself in global consumer ecosystems.

From OEM to Global Brand Identity

This strategic redirection reflects what analysts call the third phase of Chinese globalization. In the first stage, firms served as original manufacturers for foreign brands. Then came joint ventures. Now, companies are pushing their own brands with independent international operations, hiring local talent, and tailoring customer experience abroad.

Roborock’s $2,600 robotic vacuum launch in the U.S. and Pop Mart’s expansion into at least 17 American locations are powerful examples. The trend spans beyond electronics into emotionally resonant, lifestyle-driven products like toys, cosmetics, and baby care.

The STAR Market itself mirrors this transformation. Initially aimed at domestic high-tech financing, it now increasingly hosts export-driven firms: in 2019, only 12% of listed companies earned half their revenue overseas; by 2024, that figure exceeded 14%.

Soft Consumption, Strong Ambitions

One key driver behind this outward push is stagnating domestic consumption. Post-Covid economic recovery in China remains tepid, especially in discretionary spending. Companies are hedging against this by accessing higher-spending overseas markets.

Pop Mart’s story illustrates this clearly. In 2024, the firm’s overseas sales surpassed its total 2021 domestic sales, growing 373% year-on-year. The demand is not just for toys, but for symbolic characters and stress-relieving experiences — key during economic uncertainty.

Meanwhile, companies like Hisense and Bc Babycare are adapting their supply chains and branding to minimize exposure to U.S. tariffs, showing a high level of operational maturity in navigating trade barriers.

China’s Multinational Generation Emerges

Despite increasing U.S.-China tensions, Chinese firms are moving from exporters to global brands — and doing so with agility. Whether in cameras, smart appliances, or collectible toys, they are sidestepping macro-political constraints with consumer-centric strategies, local marketing, and cultural relevance.

This new generation of Chinese multinationals no longer seeks access alone — it seeks influence, consumer connection, and ultimately, brand equity on the global stage. The trend is just beginning, and if current growth patterns hold, more STAR Market names could soon become household brands in the West.

Source: CNBC

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Risk Warnings and Disclaimers

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James Whitman

Political

Middle East Situation

President Donald Trump had repeatedly urged Israel not to strike Iran’s nuclear sites.

It didn’t work.

Israeli leader Benjamin Netanyahu appeared to have defied Trump with his decision to go ahead with an attack on Iran’s nuclear program that US and allied officials had feared. Early signs suggest he went even further, targeting Iran’s ballistic-missile sites, nuclear scientists and military leaders.

That strikes came just hours after Trump had suggested to reporters that an attack wasn’t imminent and the US still believed in the prospects for a diplomatic solution that Netanyahu has long thought impossible.

“I’d much prefer an agreement, as long as I think there is an agreement, I don’t want them going in, because I think it would blow it,” he said. “Might help it, actually, but it also could blow it.”

Netanyahu’s decision will inflame tensions in the region and means Iranian retaliation is almost inevitable. It deepens foreign-policy crises that Trump’s had to wrestle with since returning to the White House and raises big questions about Trump’s ability to influence an ally like Netanyahu, not to mention the leaders of adversarial nations such as Russia or China.

Soon after the attack occurred, Secretary of State Marco Rubio put out a statement saying the US hadn’t been involved in Israel’s operation, while warning Iran not to retaliate against American interests or personnel.

“Israel advised us that they believe this action was necessary for its self-defense,” Rubio said.

Trump was not surprised by the attack and was aware of the plans before they were carried out, Fox News reported citing a phone interview with Trump, adding that the president and Netanyahu have spoken several times in recent days.

“Iran cannot have a nuclear bomb and we are hoping to get back to the negotiating table. We will see,” Trump said, according to Fox. “There are several people in leadership that will not be coming back.”

Trump ran on a promise to end what he said were failed military adventures in the Middle East, and his top advisers including Vice President JD Vance and Secretary State Marco Rubio, once more of a traditional Iran hawk, have said the era of US wars in the region is over.

Trump in recent weeks had resumed talks with Tehran on curtailing the Islamic Republic’s nuclear enrichment program, which both the US and Israel said must end but Iran had insisted was its right.

Yet Netanyahu’s attack also raises the possibility that, however much the US distances from Israel’s strikes, Trump may find himself sucked into an escalating conflict in the Middle East. Iran vowed it would deliver a “harsh blow” to both Israel and the US in response to the strikes.

US military personnel “will undoubtedly answer the call if Iran miscalculates and responds by attacking American interests,” Senate Foreign Relations Committee Chairman Jim Risch said in a statement urging Iran to come to a nuclear deal with the US quickly.

“Netanyahu’s war has overtaken President Trump’s declaration” that the US is committed to a diplomatic resolution, Justin Logan, director of defense and foreign policy at the Cato Institute, said in a note. “Netanyahu has chosen to present Trump with a fait accompli and dare him to oppose it.”

Trump has little room for further instability globally. The administration’s tariff war against foes and allies alike has set off a wave of uncertainty that risks tipping the US and the global economy toward recession.

Oil prices surged in Asia trading after the strike, fueling risk of the kind of inflation spike Trump has accused his predecessor, Joe Biden, of helping fuel.

Still, the US has been a staunch supporter of Israel since its creation in 1948 and has provided crucial military support, from the 1973 Yom Kippur War through its campaign to defend against Iran’s missile and drone attacks last year.

Even amid widespread criticism of Netanyahu’s offensive in Gaza against Hamas, the US hasn’t stopped providing the country with military and financial support.

Matt Kroenig, senior director of the Scowcroft Center for Strategy and Security at the Atlantic Council in Washington, said Israel has the capability to do the attack alone. Even so, he said, it would be a surprise if the US hadn’t given at least tacit support.

“I doubt Israel would have done this without a wink and a nod from the Trump administration,” he said.

Source: Bloomberg

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Cryptocurrency

Economic

Middle East Situation

Bitcoin Reacts to Geopolitical Shock

Bitcoin fell sharply in early Friday Asian trading, dropping over 3% to below $103,000 before stabilizing around $103,540. Ether, the second-largest cryptocurrency, plunged as much as 7.6% at one point. The sharp decline coincided with news that Israel had carried out airstrikes on Iran, prompting fears of an escalating military conflict.

The Israeli government declared a special state of emergency, with Defense Minister Israel Katz warning of imminent retaliatory missile and drone attacks from Iran. This sudden geopolitical escalation triggered a broad flight from risky assets, including cryptocurrencies.

Flight to Safety Overrides Crypto Hedge Narrative

While Bitcoin has often been touted as a hedge against inflation or geopolitical instability, the market’s reaction underscores a different reality in times of acute crisis. Caroline Mauron of Orbit Markets noted that Bitcoin's behavior is aligned with other risk-sensitive assets, while FalconX's Sean McNulty emphasized that liquidity takes precedence in such moments, as traders prioritize cash and safe-haven currencies like the U.S. dollar over speculative or volatile positions.

This shift was reinforced by the liquidation of over $1 billion worth of long positions across the crypto market within 24 hours, according to Coinglass data. The sharp unwinding highlights how leveraged positions in crypto remain vulnerable during macro-level shocks.

Global Risk Sentiment Weakens Across Markets

The crypto selloff mirrors broader financial market reactions. Equity index futures dropped globally, oil prices surged over 9%, and gold climbed as investors moved to historically safe assets. Yields on U.S. Treasuries declined as demand for low-risk government bonds rose, adding to the overall narrative of investor caution.

Tony Sycamore of IG warned that sentiment could deteriorate further as markets brace for potential retaliatory moves by Iran. With weekend trading typically more illiquid in crypto markets, volatility could persist or worsen depending on geopolitical headlines.

Outlook and Key Levels to Watch

Market analysts are closely watching the $101,000 level as a possible support for Bitcoin, but emphasize that near-term price action will be driven almost entirely by developments in the Israel-Iran conflict. While some long-term investors may view pullbacks as entry points, in the short term, crypto markets are firmly under the influence of global risk aversion.

In this environment, Bitcoin is once again proving that it is not a pure safe-haven asset, but one deeply entwined with broader market sentiment—particularly when fear eclipses fundamentals.