Trump calls off Iran strikes, says talks begin Monday; oil slumps over 6%

Trump's reversal

President Trump said late Saturday that he had called off a planned attack on Iran after Saudi Arabia, the UAE, Qatar and Iran itself asked him to hold off. "We were all set to go. Just about at this time, right now. The reason they asked is they think there's a deal," Trump told reporters Sunday evening aboard Air Force One. He said talks would begin Monday afternoon and that a deal could reopen the Strait of Hormuz and address Iran's nuclear programme. Iran's semi-official Mehr news agency denied that Tehran had requested a delay, calling Trump's claim "nothing but a new lie". Iranian Foreign Minister Abbas Araghchi said separately that negotiations with Oman on a Strait of Hormuz arrangement were "on track for finalisation".

Oil markets and OPEC+

Brent crude futures sank more than 6% to $82.41 in early Asian trading Monday, while West Texas Intermediate fell 4.74% to $80.66 a barrel. The drop unwound part of the more than 20% surge both contracts posted in July as US-Iran fighting resumed and tanker attacks near Oman deterred shipping. The United Kingdom Maritime Trade Operations reported three more tanker attacks since Saturday, and traffic in the Strait of Hormuz slowed. On Sunday, OPEC+ approved a production quota increase of around 188,000 barrels per day from September, completing the unwinding of a layer of voluntary cuts. The cartel said the move was "to support oil market stability". Because of export disruptions from the Gulf, Russia and Kazakhstan, successive monthly OPEC+ hikes this year have remained largely on paper.

The bigger focus is whether this week turns into a rinse and repeat of last week -- with hopes of a deal collapsing as Iran digs in its heels and continues to leverage its control over the Strait, potentially through an attack on a U.S. base or a tanker transiting the waterway.

Yen intervention

The Japanese yen jumped more than 1% to 155.39 per dollar after Japan's finance ministry confirmed it had conducted coordinated yen-buying intervention with the United States. Trump said Sunday the US was helping Japan "as a sign of friendship and to help the world economy". Mizuho Bank strategist Masayuki Nakajima said the intervention was unlikely to reverse the broader depreciation trend, given persistent US-Japan interest-rate differentials, but that "the momentum may shift in favour of yen appreciation" in the near term. ATFX Global strategist Nick Twidale said Trump's characterisation of the move as a "friendship trade" took away credibility from the US participation.

It is difficult to argue that the secular depreciation trend in the yen has fundamentally changed. In the near term, however, the momentum may shift in favour of yen appreciation, as the tone of recent U.S.-Japan communication carries a pointed warning to speculative traders.

Broader market reaction

Gold rose to around $4,070 an ounce as the prospect of de-escalation eased concerns about energy-driven inflation and higher interest rates. S&P 500 futures added 0.4% and Nasdaq futures gained 0.6%. Japan's Nikkei dipped 1% and South Korea's KOSPI slid 3.6% after a turbulent July in which it slumped 22%. MSCI's broadest index of Asia-Pacific shares outside Japan was down 1%. US gasoline prices fell slightly to a national average of $4.09 a gallon, according to AAA, though they remain up more than 37% since the war began on 28 February.

A familiar cycle

The New York Times noted that Trump has reached this point several times in the five months since the war began, threatening escalation and then announcing negotiations. Khaled Elgindy, a visiting scholar at Georgetown University, described the pattern as "a cul-de-sac", saying Trump "seems to go in the direction of the last person he spoke with". Trump declined to set a deadline for a deal, saying: "We'll just see how it is. We're ready to go anytime we want... I'm not looking to kill people."

A cul-de-sac is as good of an explanation as I could come up with. He seems to go in the direction of the last person he spoke with, which was M.B.S., and before that was Netanyahu.