Market Quick Take - Oil Gaps Lower as US-Iran Strikes Pause, Fed in Focus

Date: 27 July 2026

Market Drivers and Catalysts

• Macro: A two-night pause in US strikes on Iran led to a sharp decline in oil prices and reset market risk sentiment ahead of the Federal Reserve's decision on Wednesday.
• Equities: US futures indicate a rebound led by chip stocks after a soft close on Friday, with Asian markets opening higher due to the de-escalation of tensions.
• Volatility: The VIX index remained near 18.6, with oil volatility significantly higher than equity volatility.
• Digital Assets: Cryptocurrencies saw a relief rally following heavy ETF redemptions in the previous sessions.
• Commodities: Brent crude oil prices fell below $90, while gold prices rose above $4,100.
• Fixed Income: US Treasuries rallied as lower oil prices eased inflation concerns.
• Currencies: The US dollar weakened against all G10 currencies as the haven demand unwound.

Macro Overview

The US has paused strikes against Iran for the second consecutive night, alleviating fears of supply disruptions after nearly two weeks of conflict. This pause began late Friday, with Iran indicating it has halted retaliatory operations and engaged in talks with Oman regarding the Strait of Hormuz. Despite this, Iran-backed Houthi forces claimed attacks on Saudi Aramco-linked facilities, maintaining a residual risk premium in oil prices.

As the Federal Reserve's decision approaches, bond markets are pricing in a greater than one-in-three chance of a rate hike, a significant shift from previous expectations. However, a hold remains the base case, with the tone of the Fed's statement and press conference expected to be crucial.

Recent economic data showed improvement, with the S&P Global US Services PMI rising to 53.6 in July, and new single-family home sales increasing by 1.6% in June. In Europe, the UK composite PMI returned to expansion, and the eurozone services PMI also improved.

Upcoming Economic Events

• Wednesday, 29 July: FOMC decision and Chair Warsh's press conference.
• Thursday, 30 July: Bank of England decision, US Q2 GDP, and PCE deflator.
• Thursday to Friday, 30 to 31 July: Bank of Japan decision.

Equities Overview

The S&P 500 closed at 7,411.98, down 0.6% for the week, marking a second consecutive weekly decline. The Nasdaq 100 fell 1.15%, primarily due to a sell-off in chipmakers. Despite this, about 85% of S&P 500 companies reporting earnings have exceeded profit estimates, the highest proportion in five years. Futures for the S&P 500 and Nasdaq 100 rose ahead of Monday's trading.

In Europe, the Stoxx 600 index rose 0.6%, driven by gains in the tech sector, while Asian markets opened higher, buoyed by the pause in US-Iran strikes.

Volatility and Digital Assets

The VIX index closed at 18.58, reflecting market sentiment following the chip sell-off. Digital assets saw a slight recovery, with Bitcoin and Ethereum gaining as the inflation scare receded.

Commodities and Fixed Income

Brent crude oil prices fell sharply, dipping below $90 per barrel, while gold prices increased, supported by central bank buying and concerns over sovereign debt. US Treasuries rallied as lower oil prices eased inflation fears, with yields on the 2-year and 10-year notes declining.

Currencies

The US dollar weakened against all G10 currencies, with the Bloomberg Dollar Spot Index down about 0.2%. The yen remains weak, and the Singapore dollar strengthened slightly following monetary policy adjustments.

Conclusion

This week is pivotal for markets, with key central bank meetings and earnings reports expected to influence investor sentiment and market direction.