Global markets are throwing a full-scale “peace party.” Equities are surging relentlessly, risk appetite is exploding higher, and investors are increasingly behaving as though the Middle East crisis is already moving toward resolution. But beneath the rally, oil markets and renewed violence in Lebanon are flashing warnings that the geopolitical story may not be nearly as settled as stock investors want to believe.
Wall Street led the charge overnight as S&P 500 and NASDAQ blasted to fresh record highs. The momentum then rolled straight into Asia, where Nikkei climbed to another historic peak while KOSPI paused only briefly after reaching yet another intraday record. The market narrative has clearly shifted from war panic toward peace optimism.
The catalyst remains growing confidence that the US and Iran are moving closer to a framework agreement to end the conflict and reopen the Strait of Hormuz. Traders are increasingly betting that the proposed 14-point memorandum of understanding will either produce a formal peace deal or, at minimum, prevent further military escalation. For equity investors, that distinction is enough. Markets are increasingly treating “no new escalation” as effectively equivalent to peace.
The result has been a rapid unwind of the entire “war trade.” Dollar is under broad pressure this week, while risk-sensitive currencies and global equities continue to rally aggressively. Oil prices have also fallen sharply from their highs, with Brent briefly crashing below the critical $100 mark earlier this week.
But the fact that Brent is still hovering near $100 may actually be one of the most important signals in markets right now. Oil traders are not fully buying the optimism yet. If energy markets were genuinely convinced the crisis had been resolved, crude prices would likely be much lower already.
One reason is that the regional picture remains extremely fragile. Israel reportedly launched strikes on Beirut on Wednesday for the first time since agreeing to a ceasefire with Hezbollah last month. Israel said the operation targeted a commander from Hezbollah’s elite Radwan force in the southern suburbs of the Lebanese capital.
That strike carries broader significance because the Lebanon ceasefire is one of the pillars supporting the wider US-Iran truce. Tehran had viewed a halt to Israeli operations in Lebanon as one of the critical conditions for broader de-escalation. Renewed military action therefore raises questions about how durable the current diplomatic momentum really is.
In other words, equities may be pricing peace faster than geopolitics can realistically deliver it. Investors are clearly leaning toward a no-escalation outcome, but crude markets still reflect lingering anxiety that the regional situation could deteriorate again quickly if negotiations break down or regional actors lose control of events.
Meanwhile, another major market focus remains Yen after the extraordinary volatility of the past two weeks. Japanese Vice Finance Minister Atsushi Mimura escalated Tokyo’s anti-speculator rhetoric today by declaring Japan faces “no constraints” on how often it can intervene in currency markets. He also revealed that Japanese authorities remain in daily contact with Washington.
Perhaps most importantly, Mimura said the US “fully understand our thinking and our actions,” effectively signaling to markets that Tokyo believes it has a green light from Washington to continue defending Yen aggressively if necessary. That message was widely interpreted as a direct warning to speculators betting against the Japanese currency.
Markets are now looking ahead to US Treasury Secretary Scott Bessent’s trip to Japan next week, where discussions are expected to cover speculative Yen selling, economic security issues, energy procurement, and potentially the Iran conflict itself.
For now, risk appetite remains dominant. Kiwi and Aussie are leading gains this week, while Loonie and Dollar lag badly as falling oil and fading war fears unwind safe-haven positioning. But with oil still elevated and Lebanon tensions re-emerging, investors may soon discover that the path from ceasefire optimism to genuine regional stability is far more complicated than the current equity rally suggests.
In Asia, at the time of writing Nikkei is up 5.94%. Hong Kong HSI is up 1.43%. China Shanghai SSE is up 0.27%. Singapore Strait Times is up 0.29%. Japan 10-year JGB yield is down -0.027 at 2.479. Overnight, DOW rose 1.24%. S&P 500 rose 1.46%. NASDAQ rose 2.02%. 10-year yield fell -0.06 to 4.36.
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AUD/USD Daily Report
Daily Pivots: (S1) 0.7185; (P) 0.7231; (R1) 0.7284; More…
Intraday bias in AUD/USD remains on the upside at this point. Current rally should target 61.8% projection of 0.6420 to 0.7187 from 0.6832 at 0.7306. On the downside, below 0.7223 minor support will turn intraday bias neutral again. But outlook will remain bullish as long as 0.7101 support holds, in case of retreat.
In the bigger picture, rise from 0.5913 (2024 low) is still in progress. Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will solidify the case that it’s already reversing the down trend from 0.8006 (2021 high). Further rally should then be seen to retest 0.8006. For now, outlook will remain bullish as long as 0.6832 support holds, in case of pullback.