Once again, Iran appears to have retaliated just enough to save face — without triggering broader escalation. Tensions will likely ease from here if Israel reciprocates. However, it remains unclear whether an actual ceasefire is in place, as missiles reportedly continue to be fired across the border. Iran has said it will stop if Israel does, but Israel has yet to make a formal statement.

In energy markets, US crude tumbled nearly 10% yesterday, Brent crude dropped almost 9%, and natural gas lost nearly 5% — falling below its 100-DMA this morning. The sharp retreat reflects fading concerns that Iran might disrupt oil and gas flows through the Strait of Hormuz. Oil prices have now pulled back to levels seen before tensions between Israel and Iran flared earlier this month. While prices are rebounding slightly this morning amid ceasefire uncertainty, waning Middle East tensions — and the perception that the worst is over — could limit upside for US crude near the 200-DMA. Focus may now return to core fundamentals: OPEC’s production ramp-up plans, global demand trends, and softening growth outlook — all of which argue for weaker oil prices. Should the market revert to a pre-tension scenario, US crude could fall below $65 per barrel and resume its year-to-date bearish trajectory. If tensions re-escalate, prices may spike again — but geopolitically driven rallies tend to be short-lived and are better suited for tactical plays than long-term exposure.

Elsewhere, gold is softer this morning, and the US dollar — which had benefitted from safe-haven inflows — is giving back gains. The EURUSD has risen above 1.16, the USDJPY is sharply down to 145, and the AUDUSD is back to the 0.65 level. FX markets are clearly reflecting the de-escalation narrative.

Equities also reflect this shift. Chinese stocks are trading higher, and Japan’s Nikkei is testing the highest levels since April. European defense stocks rebounded from yesterday’s dip as NATO members gather in The Hague — where leaders are expected to reaffirm plans to spend around 3.5% of GDP on ‘hard defense’ (troops and weapons) and an additional 1.5% on defense-related areas like cybersecurity and military mobility. But with most of this already priced in, the upside may be limited. Meanwhile, the Stoxx 600 has slipped below its 50-DMA, weighed down by a lack of progress on trade negotiations. The July 9th tariff deadline is fast approaching — and yet, there’s been no meaningful update.

In contrast, US equities closed higher Monday, with futures pointing to further gains this morning. Gains in US equities are supported by improved risk appetite and rising expectations of a dovish Federal Reserve (Fed), which have pushed the 2-year Treasury yield further below the 4% mark. This is notable because the Fed’s hawkish stance — especially relative to the European Central Bank (ECB) — had been a key driver of the US-Europe convergence trade. Now, a reversal in that narrative could shift flows.

That said, Fed Chair Jerome Powell may temper dovish expectations during his semi-annual testimony, which begins today and continues tomorrow. He’s likely to maintain a cautious tone, emphasizing that inflation remains too high to justify a rate cut before the fall — especially amid ongoing geopolitical and trade uncertainty.

All in all, questions linger about the White House’s tariff strategy as the July deadline for the reciprocal tariff pause looms. Trump was expected to deliver clarity around now — but headlines have been dominated by Middle East events. If tensions continue to ease, trade talks could return to the spotlight and potentially shift risk sentiment on both sides of the Atlantic. However, tangible progress will be needed to keep the Stoxx 600 above the 200-DMA.