06:00 Major Shock, The Real Verdict Awaits Tonight

Source: Wall Street Intelligence Circle

Unwinding war trades does not mean war risks have disappeared.

The global market experienced a major shock at Monday’s open (06:00 GMT+8):

Oil prices plunged 5% at the open, with the decline once widening to 8%;

US stock futures gapped higher, recovering all of Friday’s losses;

Gold prices gapped up by over $30, testing the $4,100 level;

The 10-year US Treasury yield fell sharply to 4.63%;

The dollar index gapped lower, but remains above the 101 level for now.

First, the temporary pause in mutual US-Iran attacks restored some risk appetite in the market, but the moves have been much more intense than expected—last week’s most crowded war trades were all “unwound at once.” The current irrationality lies in the fact that the US and Iran have only reached a “conditional non-aggression”—this is not an official, stable, or verifiable ceasefire, yet the market seems to be trading as if a ceasefire agreement has already been reached. The message from the Iranian side is that as long as the US holds back, Iran will also refrain from retaliation; meanwhile, diplomatic mediation is ongoing, but issues like the Strait of Hormuz, Red Sea shipping, and the nuclear issue remain unresolved.

Second, the magnitude of the oil price drop shows that a massive war premium had built up previously. The sharper the drop, the more it indicates not a slowly forming new trend, but a stampede-like exit following concentrated positioning. Therefore, oil prices may see two phases today:

During Asian hours, ceasefire expectations are played out, triggering panic unwinding;

In the European and New York sessions, the question shifts: Is this a permanent ceasefire, or merely a brief pause left for negotiations by Trump?

Third, the timing of this reversal is very important—it came as US Treasury yields neared 4.7%, triggering a reversal, with this level becoming Trump’s new defensive line (previously 4.66%). The next time yields approach this level, it may again prompt Trump to change his tactics.

Fourth, the dollar remains above 101, indicating the market is not fully convinced by the ceasefire. Investors have only partially exited war positions, with safe haven dollar positions not yet fully withdrawn, showing some reservation. The 101 level is a key dividing line today—a break below would make the rebound in global risk assets look more credible; holding above 101 or moving higher would mean the market still views this pause as a tactical halt, and early gaps in oil and US equities could narrow.

Fifth, from Trump’s perspective, he has the incentive to keep pressing down oil before the US Federal Reserve announces its rate decision on Thursday (02:00 GMT+8). Persistently high oil prices could not only reignite inflation expectations and push up Treasury yields, but may also provide Waller with a reason to hold on to a hawkish stance or even signal a rate hike. While Trump may not be able to influence the Fed’s decision, he at least does not want to give Waller another reason to hike right before the rate meeting.

Everything awaits confirmation later in the day—the stronger the move at Monday’s open, the more important the New York session’s validation becomes.