Global markets navigated one of the most volatile weeks of the summer, as a fresh flare-up between the US and Iran drove sharp swings across equities, oil and gold. By Friday, risk sentiment had recovered strongly on renewed AI optimism and hopes that diplomatic channels would prevent a broader escalation. Attention now turns to next week's major event — new Federal Reserve Chair Kevin Warsh's first congressional testimony.
The week opened with escalation. The US military carried out strikes on Iranian targets on two consecutive days, prompting Iranian retaliation on US bases in Kuwait and Bahrain. President Donald Trump declared the earlier ceasefire "over" and warned of additional strikes and a potential new blockade.
By Thursday, the picture softened. Trump said Iran had reached out seeking a deal, and technical talks resumed. A US official confirmed Washington was still committed to a solution. Markets took the shift as a signal that neither side wants a full-scale war.
Crude oil captured the week's whiplash cleanly. Prices spiked on the initial strikes, then reversed as diplomatic hopes returned. By Friday, Brent was trading near $76 a barrel after losing more than 2% on Thursday, and WTI was below $72.
Traffic through the Strait of Hormuz dropped sharply during the flare-up, but the broader supply picture stabilised as talks resumed. The market remains highly sensitive to any fresh headline out of the region.
US indices stumbled midweek on the geopolitical noise but recovered strongly into Friday. Asian markets closed the week on a firm note — the Hong Kong Hang Seng climbed 1.2% for its best week in more than a year, and South Korea's Kospi jumped 4%, powered by SK Hynix's $26.5 billion American depositary share offering.
The rebound was led by chip stocks and mega-cap tech, reflecting continued investor conviction in the AI infrastructure theme. New York Fed President John Williams flagged AI-driven demand as one of his main concerns for inflation this week — a comment that quietly reinforced the sector's structural strength.
Gold traded above $4,100 an ounce on Thursday, supported by a softer US dollar but capped by concerns that Middle East disruption could feed back into inflation. HSBC cut its 2026 average gold price forecast to $4,560 from $4,864, citing the shift in the rate outlook.
Minutes from the June Federal Reserve meeting showed growing concern over inflation, with several policymakers seeing a case for a rate hike before rates were ultimately left unchanged. Markets are now pricing in a 63% probability of a Fed rate hike in September, with at least one hike widely expected before year-end.
This week showed how quickly geopolitical headlines can dictate cross-asset direction, and how strongly the AI-led equity theme is still willing to buy dips. But the real test comes Tuesday. Warsh's testimony will be his most public policy statement to date and could reset expectations on rates, inflation and the Fed's balance sheet. Volatility is likely to stay elevated across indices, gold, oil and the dollar into the second half of July.
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