Markets in Asia were volatile as negotiators from the United States and Iran engaged in what appeared to be on-again, off-again talks that nonetheless yielded signs of progress, even after a fresh escalation in rhetoric. President Trump threatened renewed attacks on Iran, and Tehran initially said it had closed the Strait of Hormuz again, creating immediate concern for oil supply routes and shipping traffic.
Following the initial flare-up, Iranian negotiators described the first session as having actually produced progress. Officials from Oman and Pakistan said a committee is being formed to manage the discussions, with the objective of reaching a deal within 60 days. The exact status of the strait remained unclear: U.S. Central Command reported 55 vessels had transited on Saturday, while ship-tracking data showed 32 the day before, indicating a slowdown in shipping activity around the waterway.
Iran also indicated a mechanism might be established to oversee the strategic channel, with the suggestion that some form of fee on shipping could be part of any arrangement. The prospect of a managed mechanism and the intermittent threat to transit routes pressured oil markets; Brent reversed earlier gains and fell about 2.5% to trade below $79.00 a barrel, while Asian equities moved higher on the apparent thaw in talks.
Across financial markets, Wall Street futures and U.S. Treasuries retreated from earlier declines as investors assessed the geopolitical developments alongside monetary policy risks. Futures markets imply roughly a 75% probability of a Fed rate rise as early as September and about 41 basis points of additional tightening by year-end. Short-term interest-rate sensitive instruments reflected those expectations: the yield on the two-year Treasury reached 4.2276%, the highest level since early 2025.
Political noise from the U.K. added another layer of uncertainty. President Trump posted that Prime Minister Keir Starmer was set to resign, following multiple media reports that Starmer would step aside to allow a leadership contest for rival Andy Burnham, who won an election for a parliamentary seat decisively last week. If the reports are accurate, Burnham is widely seen as likely to assume the top job and to overhaul the cabinet, potentially replacing finance minister Rachel Reeves. The gilt market is uncertain about Burnham's commitment to fiscal discipline and is concerned he could pursue increased spending and borrowing.
Key events likely to steer markets on Monday include remarks from Federal Reserve Board Governor Christopher Waller, speeches by European Central Bank President Christine Lagarde and EU Economy Commissioner Valdis Dombrovskis, the European Union's consumer confidence reading for June, and Canadian inflation data for May.
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By presenting the interplay of geopolitical friction, shipping disruption risk and monetary policy expectations, markets are being forced to price a complex mix of supply-side and demand-side uncertainty.