Yen Strengthens and Trump Signals Short US-Iran Strike Campaign

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In Today's Note

• US equities broke a three-day losing streak ending yesterday's trading session higher after President Trump signalled that recent military escalations in the Middle East would be short-lived. BTC continued to consolidate below $80K, while a rally in the yen took place on hawkish comments from a BoJ board member. Meanwhile, NY Fed President John Williams indicated that recent data showed a cooling in inflation and claimed that Fed policy is "in a good place" currently.

Market Snapshot: Overnight Moves

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Macro & Markets

• US equities ended a three-day decline yesterday, which was partly triggered by rising global bond yields and a return to military conflict in the Middle East. The re-escalation of tensions in Iran has raised fears of higher energy costs and further inflationary pressures.
• US equities ended yesterday’s session higher, however, coinciding with comments from President Trump that recent renewed attacks on Iran would be short-lived. 
• Oil prices slowed their advance following the comments, consolidating around $94 a barrel for Brent crude. 
• The S&P 500 rose 0.46%, with 10 of its 11 sectors closing higher. Among its constituent stocks, Dell Technologies Inc., the top performer in the index yesterday, rallied 16% after the company boosted its annual sales forecast by $25B citing surging demand for servers to run AI tasks. 
• The Nasdaq-100 ended higher by a modest 0.23%, while BTC continued to trade sideways around $77-78K. 

• The yen jumped more than 1% against the US dollar in trading yesterday and currently trades at 156.82 per dollar, after one of the BoJ’s most hawkish board members, Hajime Takata, raised the possibility of outsized or back-to-back interest rate hikes. 
• The sharp move meant market participants were also looking out for signs that authorities had stepped into the market to support the yen, as they did in late July.

• President Donald Trump said renewed attacks on Iran would likely be short-lived, reiterating his claim that the US controls the crucial Strait of Hormuz after fresh fighting spiked energy prices and rekindled fears of an open-ended war.
• President Trump responded to reporters yesterday asking how long the US’s bombing campaign could last by saying, "I don't think too long” and reiterated his claim that the US controls the Strait of Hormuz. 
• The US military carried out a second round of strikes in three days, targeting radar systems and Iranian mine-laying capabilities along Iran's southern coast. Iran retaliated with drone and missile strikes on US military bases in the region. 
• Trump also told reporters "We took out all of the new equipment that they tried to build along the Strait of Hormuz, some defensive, some offensive. It was a very heavy attack last night, and we're prepared to do another one any time we want."

• In an interview with CNBC, Federal Reserve Bank of New York President John Williams said that recent economic data provides evidence that inflation in the US continues to ease, with higher energy prices not yet majorly spreading to other services sectors.
• Williams said, “The data recently has been encouraging. I am actually seeing the trend in inflation moving slowly down as some of the effects of the tariffs move into the rearview mirror.”
• He added that, “Coming out of the last FOMC meeting, interest rates are in a good place” to balance the Fed’s dual mandate. 

• Meanwhile, according to the Fed’s recent Beige Book, economic activity in the US increased modestly over the past two months, with demand from data centres in particular helping drive economic growth. 
• The report which consists of a survey of the Fed’s regional business contacts, stated that the outlook for the economy was “positive”, with manufacturing activity growing across most of the Fed’s districts on the back of demand for defense and data-center orders — “Healthy labor demand was seen most frequently in manufacturing, construction and some service sectors, while retail and hospitality sectors saw falling labor demand”. 
• Additionally, the report wrote that “Consumer-facing contacts in a few districts noted that heightened price sensitivity among customers was putting a limit on their ability to pass through input price increases”.

Charts of the Day

Charts of the Day

Figure 1. Block Scholes BTC Risk-Appetite Index (white, left-hand axis) and BTC spot price (orange, right-hand axis).

Figure 2. Block Scholes ETH Risk-Appetite Index (white, left-hand axis) and ETH spot price (purple, right-hand axis).

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Figure 3. BTC at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes.

Figure 4. ETH at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes.

Figure 5. BTC 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes.

Figure 6. ETH 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes.