Last week's core events revolved around the US-Iran peace talks. Major overseas institutions reported that while some progress was made, significant differences remained between the two sides on issues such as Tehran's uranium stockpile and control of the Strait of Hormuz. US Secretary of State Rubio stated that there were "some positive signs" in the negotiations, but emphasized that much work remained to be done. Pakistan participated in coordination, with its diplomats traveling to and from Iran. A Qatari negotiating delegation also arrived in Tehran to assist in advancing the agreement.

With the US-Iran negotiations still stalled and shipping traffic through the Strait of Hormuz remaining minimal, rising inflation expectations have pushed global bond yields higher, fueling market expectations for central bank interest rate hikes. This week, market pricing did not see significant changes, but what truly drew attention was the increased bets on a Federal Reserve rate hike. This is mainly due to the ongoing stalemate between the US and Iran.

At the inauguration ceremony of new Federal Reserve Chairman Kevin Warsh, US President Trump bluntly stated that Warsh would limit excessive "forward guidance," allowing the Fed to return to a more pragmatic, action-oriented style. This statement quickly ignited market attention and brought a long-debated academic question into the spotlight: How much should the Federal Reserve say? And what are the consequences of saying the wrong thing?

Furthermore, while uncertainty remains in the Middle East, market risk appetite has improved compared to before, weakening some safe-haven buying of gold. Although Middle East geopolitical risks persist, market risk aversion has cooled somewhat. This means that gold is not currently receiving significant support from safe-haven funds.

This "high inflation + high interest rate" environment is not favorable for gold overall. From a global asset allocation perspective, market funds are still clearly biased towards dollar assets. The dollar index has recently risen to near a six-week high, while US Treasury yields have also remained high.

Last Week's Market Performance Review:

At the end of last week, the three major US stock indices diverged. The Dow Jones Industrial Average hit a new all-time high during trading, marking its first record high since the outbreak of the Iran war. The artificial intelligence boom continued to drive the technology sector higher, while market optimism regarding potential progress in US-Iran negotiations significantly boosted risk appetite. However, oil prices, the US dollar, and global inflation risks remain highly volatile, indicating that the market remains highly vigilant about the situation in the Middle East. The Dow Jones Industrial Average hit a new record high during the session. The Dow rose 420 points, or 0.8%, successfully breaking through the previous record high of 50,512.79 points set on February 10th. Earlier, the Dow had already regained the 50,000-point mark.

Last week, despite continued tensions in the Middle East, gold remained weak. As the market re-bet on future Fed rate hikes, rising US Treasury yields, and concerns about oil prices pushing up inflation, gold prices continued to be under pressure, falling to a three-week low at one point. Meanwhile, while the US-Iran negotiations released some positive signals, key differences remained unresolved, keeping the market highly cautious about the global inflation and interest rate outlook. On Friday (May 22nd), spot gold closed down 0.75%, settling around $4,510 per ounce.

Last week, spot silver was quoted around $76/ounce, exhibiting a pattern of sharp decline followed by an oversold rebound, wide fluctuations, and intense battles between bulls and bears. Silver's volatility was far greater than gold's.

Short-term outlook is leaning towards correction, while medium-term pressure remains, primarily driven by the US dollar, US Treasury yields, and expectations regarding Federal Reserve policy.

Last week, the global currency market showed a clear divergence. The US dollar index remained strong, near a six-week high, mainly influenced by geopolitical factors related to Iran, with market concerns rising that energy disruptions could push up inflation. Non-US currencies were generally under pressure, with the Japanese yen and Canadian dollar showing relative weakness, while the British pound showed some resilience. Traders focused on the possibility of a shift in Federal Reserve policy and the potential transmission effect of the Middle East situation on global economic growth.

The euro/dollar continued to weaken, hovering around the 1.1600 area on Friday. Due to the strong dollar and increasing market expectations that the Federal Reserve might maintain a hawkish stance given the continued uncertainty surrounding the US-Iran peace agreement, the pair continued to face resistance. On the other hand, K. Warsh was sworn in as Chairman of the Federal Reserve. The yen weakened to 159.20 as Japan's core consumer price index (CPI) rose at its slowest annual pace in four years, with USD/JPY still attracting some bargain hunting ahead of Friday's European open. Furthermore, hawkish Fed expectations supported the dollar and the pair, which appeared poised for a second consecutive weekly gain. However, concerns about intervention and market bets on the Bank of Japan raising policy rates next month could limit the yen's decline and suppress spot prices.

The pound gained well against the dollar in the weekend session, approaching the 1.3450 area. Meanwhile, the market largely ignored the impact of weaker-than-expected UK data, with investors continuing to focus on new developments surrounding the US-Iran conflict, especially against the backdrop of a potential peace agreement. The Australian dollar fell 0.25% against the US dollar in European trading, approaching 0.7120. Following weak Australian employment data for April, market bets on a hawkish stance from the Reserve Bank of Australia weakened, putting strong selling pressure on the Australian dollar and diminishing its appeal as an inverse currency.

Last week, WTI crude oil prices hovered near 10-day lows, with gains limited below the $98.00 mark. A weekly decline of nearly 4% is expected, closing at $96.90. Comments from US officials regarding progress in peace talks with Iranian authorities fueled hopes of ending the war through negotiations, putting pressure on oil prices.

Bitcoin traded in a narrow range around $77,000 last week. Rising US long-term Treasury yields and geopolitical tensions, particularly those surrounding US-Iran relations and oil prices, were considered major headwinds for Bitcoin. Unless yields ease, Bitcoin is likely to remain range-bound. The $75,000-$77,000 range remains a key support area. Bitcoin traded around $77,733, essentially flat over the past 24 hours. Previously, Bitcoin had fallen to $76,685 and failed to hold above $78,000 during the US trading session.

On the last trading day of last week, US Treasury yields and the US dollar index exhibited a correlated trading pattern. The 2-year US Treasury yield was last quoted at 4.082%, while the US dollar index was last seen around 99.3181. Market focus is concentrated on the impact of changes in the Federal Reserve leadership and the macroeconomic environment on the interest rate path. Kevin Warsh will be sworn in as Federal Reserve Chairman at the White House today, and the high inflationary pressures he faces, coupled with expectations of a rising neutral interest rate, are the core variables driving the current market. Looking ahead, the central level of US Treasury yields is expected to gradually rise under the impetus of structural factors, but will remain in a high-level range-bound movement in the short term.

Market Outlook for This Week:

This week (May 25-29), global financial markets will witness a concentrated interplay of policy signals and key data. The actions of central banks in various countries, inflation data, and geopolitical situations will intertwine to influence market trends.

From speeches by key Federal Reserve officials to expectations of a Bank of Japan interest rate hike, from leading indicators of Chinese corporate profits to inflation data from Europe and the US, each event could trigger significant asset price volatility.

Adding to this, changes in liquidity due to the closure of some markets mean that investors need to focus on core variables and accurately grasp the marginal changes in policies and data. US, Hong Kong, and South Korean stock markets are closed for the day, with no major data releases scheduled. Major global markets are entering a brief period of consolidation, and tightening liquidity may exacerbate short-term volatility. Investors can use this time to review upcoming data and policy developments to prepare for future trading strategies.

On the policy front, Bank of England Governor Bailey, 2028 FOMC voting member Schmid, and Federal Reserve Governor Bowman will speak at a conference in Iceland. The combined pronouncements from senior central bank officials from multiple countries may signal a coordinated global monetary policy approach.

Regarding risks this week:

Besides core economic data, investors should be wary of three potential risks:

First, the ongoing Russia-Ukraine conflict and escalating tensions in the Middle East could fuel risk aversion.

Second, speeches by officials from the Federal Reserve, the European Central Bank, and the Bank of Japan could signal an unexpected policy shift, potentially leading to a rapid correction of market expectations and sharp short-term fluctuations in exchange rates and bond markets.

Third, global inflation stickiness could exceed expectations. If core inflation data in Europe and the US remains high, it could delay central bank easing and suppress the performance of risk assets.

This week's conclusion:

News related to the Middle East war and the progress of energy export recovery in the region will continue to influence the pace of global markets. Strong profits from the world's largest companies conflict with the inflationary impact of the war, causing stock markets and sovereign yields to recently reach local peaks.

Inflation will also be a focus for the Eurozone's largest economy and Australia. Japan will have a busy week, with industrial production, retail sales, consumer confidence, and the unemployment rate to be released. Meanwhile, the Reserve Bank of New Zealand (RBNZ) and the Bank of Korea (BOK) will set interest rates, and Canada and Brazil will release their GDP figures.

The Strait of Hormuz is still awaiting substantive negotiation results and navigation status. Currently, navigation is marginally improving, while Iran's oil storage capacity, even with production cuts, may run out within a month, leading to a complete shutdown.

Therefore, the overall timeline for peace talks is drawing closer. Today's gold price decline is mainly due to the realization of positive news leading to a contraction in risk appetite. The market will continue to focus on marginal geopolitical changes and the Federal Reserve's monetary and fiscal policy adjustments.

Can the US economy truly withstand the energy shock?

Despite rising energy prices putting cost pressure on the economy and the objective weakness at the industry level, the US economy remains on a robust track overall. Structural trends (AI investment, healthcare employment), fiscal transfers (tax rebates), and the lack of evidence of large-scale cost transmission disruptions collectively form multiple buffers against recession.

US GDP growth in the first quarter of 2026 is expected to be robust at 2%, with the unemployment rate remaining stable near a historically low 4.3%. Initial jobless claims suggest that news of layoffs has been overhyped. However, the economic strength is not universally widespread—AI investment is the primary driver of capital expenditure growth, and job growth relies almost entirely on robust hiring in the healthcare sector. Both are structural trends underpinning the economy, even amid cyclical weakness in other areas.

Furthermore, government spending continues to provide support: despite cuts in efficient government departments, the fiscal deficit remains around 5% of GDP, and personal transfers account for nearly 20% of personal income.

Markets believe it's premature to be bearish on the US economy, but questioning the fragility of overall data is reasonable, especially against the backdrop of the current massive energy shock. Even with the current relatively healthy economic situation, the recurring question is: how long can the economy sustain itself before falling into recession in this environment?

The US economy as a whole is not currently in recession.

The National Bureau of Economic Research (NBER)'s range of indicators used to identify recessions are not currently flashing red. Admittedly, some sectors warrant attention, but the latest data, including job growth, industrial production, and retail sales, are accelerating, and the unemployment rate remains stable.

Meanwhile, the overall strength of most key data points masks significant sectoral weakness that has emerged over the past year. We note the vulnerabilities of trade-dependent industries and acknowledge that two facts can coexist: the overall economy may look good, but the underlying sectors may be experiencing industry-wide downturns.

Nevertheless, the fundamentals of the U.S. economy remain solid, and a few months of rising gasoline prices is not enough to derail it.

There are meaningful buffers in the economy to absorb energy shocks.

The most significant of these is the tax credits provided by the Beauty Act. As of now, the 2026 tax credit is 17% higher than in 2025, equivalent to an extra $50 billion in consumers' pockets (this portion is not included in 2026 income). The generous tax credit is acting as a buffer against rising gasoline prices—the agency estimates that rising gasoline prices have led to approximately $150 billion in nominal spending. Excluding gas station sales in retail sales data, spending increased by nearly $1.4 billion between February and April, with little sign of demand disruption.

However, the distribution of tax credit income across the income spectrum is uneven, and there are signs of stress, including a decline in the personal savings rate to 3.6% (March data). But the savings rate still has room to fall further—though it won't feel good for consumers, increasing the risk that they'll start cutting spending more meaningfully.

It's estimated that nearly one million jobs would be needed to trigger a recession.

This figure would be enough to push up the unemployment rate and trigger the SAM rule by December. Historically, this rule has indicated that a recession is usually triggered when the three-month moving average of the national unemployment rate is 0.5 percentage points or more above its 12-month low. The question is: how would this happen?

The agency arrived at this figure by estimating the increased input costs across the private sector due to rising oil prices. This scenario is possible if all sectors proportionally offset the impact on profits by laying off a sufficient number of workers, without having to pass the costs on to consumers. But this is an extreme case.

The agency states that it currently sees no signs of hindered cost transmission. The Producer Price Index (PPI) rose at its fastest pace since 2022 in April. The rise in the Consumer Price Index (CPI) in the same month also confirms that higher input costs are being passed on to consumers. Therefore, recession-based projections are currently not realistic.

Conclusion:

While there are underlying concerns about the economy, the probability of a recession in the short term is low.

In summary, despite rising energy prices putting cost pressure on the economy and the objective existence of weakness at the industry level, the US economy as a whole remains on a sound track. Structural trends (AI investment, healthcare employment), fiscal transfers (tax rebates), and the lack of evidence of large-scale cost transmission disruptions collectively constitute multiple buffers against recession.

Current data does not support the assessment that the US economy will fall into recession in 2026. However, declining personal savings rates and accumulating consumer pressure deserve continued attention—the risk of recession is not nonexistent, but the trigger threshold is much higher than many markets fear.

Long-term US Treasury yields surge to a near 19-year high

Last week, the global bond market experienced another sharp correction. Market funds, worried about a resurgence of inflationary pressures, concentrated on selling US Treasury assets, pushing up yields across all maturities. The yield on 10-year US Treasury bonds rose to around 4.682%, breaking the May 2025 high of 4.62%.

The yield on 30-year Treasury bonds surged, reaching a near 19-year high. The simultaneous strengthening of both short- and long-term yields completely reversed expectations of a rate cut this year.

Market trading logic has shifted entirely to anticipating the start of a Federal Reserve rate hike cycle. Rising financing costs have not only suppressed consumer spending and the vitality of the real economy but have also significantly impacted the overvalued equity market. Long-term bond yields in major global economies have also risen in tandem.

US Treasuries Weaken Across the Board; Long-Term Yields Hit Multi-Year Highs

Driven by risk aversion selling, US Treasury bonds continued to weaken, with yields rising across the board. The yield on the two-year US Treasury bond, a key indicator of short-term monetary policy, also rose slightly to 4.121%. A common rule in the financial world is that one basis point equals 0.01%, and bond prices and yields generally move inversely; a sustained rise in yields indicates continued downward pressure on bond asset prices.

Strong Inflation Rebounds, Completely Reversing Market Interest Rate Expectations

Previously released economic data clearly showed a growing momentum of rising US inflation, while geopolitical tensions pushed international oil prices higher. This shift fundamentally changed the fixed-income market's previous assessment. Investors no longer believed the Federal Reserve would continue its rate-cutting strategy, instead betting on a high probability of central bank rate hikes, resulting in a fundamental change in market sentiment. Now, the situation has reversed, and the Federal Reserve initiating a rate-hiking process has become the mainstream market assessment.

Rising Financing Costs Pressure Both the Real Economy and the Stock Market

The continued rise in US Treasury yields has directly led to a simultaneous increase in interest rates for various forms of private lending, including mortgages, auto loans, and credit cards. The persistently high cost of living will gradually suppress consumer spending and drag down overall consumer market activity.

From a macroeconomic perspective, rising long-term interest rates will also slow the pace of overall economic expansion and exert strong downward pressure on currently high stock market valuations. If the 30-year US Treasury yield successfully reaches the 5.25% mark in the short term, the capital market will experience a sustained valuation correction.

Dragged down by the negative interest rate environment, all three major US stock indices closed lower on the day, marking the third consecutive day of declines, with a continued spread of risk aversion and selling pressure.

Institutional Expectations Extremely Pessimistic, Global Bond Markets Respond Simultaneously

The latest survey results released by Bank of America on the same day directly reflect the pessimistic attitude of institutional investors. Among the global fund managers surveyed, over 60% believe the 30-year US Treasury yield is likely to rise to 6%, a figure very close to historical highs, leaving considerable upside potential from current levels. Only a few institutions are optimistic about a rate decline.

This rate hike is not independent of the US market; bond markets in developed economies worldwide have weakened in tandem. On the same day, yields on long-term German and British government bonds rose simultaneously, and the yield on 30-year Japanese government bonds even hit a record high this week, establishing a global trend of rising interest rates.

Conclusion:

Overall, renewed inflation coupled with persistently high energy prices has completely shattered previous expectations of loose monetary policy. Long-term US Treasury yields have repeatedly broken through key levels, reshaping the market interest rate landscape. The expectation of a policy shift by the Federal Reserve continues to intensify, and rising financing costs across society are a foregone conclusion. This will not only profoundly affect the pace of the US economy but will also ripple through global financial markets via financial linkages.

Before inflationary pressures fully ease, long-term interest rates are more likely to rise than fall, and various assets will continue to seek a reasonable pricing range in a high-interest-rate environment.

Oil and Dollar Join Forces to Stabilize Gold Prices: Is the Deep Correction Over?

Supported by falling oil prices, a weaker dollar, and declining US Treasury yields, gold maintained a volatile pattern around $4,500 last week. Uncertainty surrounding US-Iran negotiations dampened market sentiment. Meanwhile, the expectation of a Fed rate hike by the end of the year rose to 58%, suggesting gold prices may maintain a consolidation pattern in the short term. Behind this trend is the interplay of three forces: violent fluctuations in the oil market, a surge and subsequent fall in the dollar index, and a downward turn in US Treasury yields. Investors are asking: after experiencing a deep correction of over 14% since the outbreak of the war, has gold found its bottom?

Oil Price Rollercoaster: From Soaring to Plunging, the "Unexpected Driver" for Gold

Gold's successful rebound from its intraday low last week was most directly aided by the dramatic turnaround in the oil market. Oil prices initially surged by over 4% following news that Iranian Supreme Leader Mojtaba Khamenei had ordered a halt to the export of enriched uranium. This strong stance dampened market hopes for a swift resolution to the conflict, triggering a wave of risk aversion.

However, the situation reversed as trading progressed. Uncertainty surrounding the prospects of US-Iran negotiations began to weigh on oil prices, with both the US and Iran reaching their lowest closing prices in nearly two weeks. For gold, the decline in oil prices had a dual effect. On the one hand, lower oil prices eased some inflation anxieties, cooling market bets on aggressive interest rate hikes by the Federal Reserve; on the other hand, lower oil prices also weakened short-term demand for gold as an inflation hedge. The combination of lower oil prices and a weaker dollar from a six-week high should have been beneficial for gold in the short term, and gold prices have indeed strengthened.

The "Divine Assist" of the US Dollar and US Treasury Yields: Double Support Emerges Simultaneously

If the drop in oil prices was the trigger for gold's stabilization, then the simultaneous surge and subsequent decline in the US dollar index and US Treasury yields provided solid bottom support for gold prices.

The US dollar index briefly surged to a six-week high. However, unconfirmed reports that Washington and Tehran had reached a final draft agreement to end the war caused the dollar to quickly give back its gains, ultimately settling almost flat at 99.13. A weaker dollar means that dollar-denominated gold becomes cheaper for investors holding other currencies, providing direct demand support for gold prices.

Meanwhile, US Treasury yields finally found respite after a fierce sell-off, retreating from the 5.197% level reached last week—a pre-global financial crisis high since July 2007. The decline in yields directly reduced the opportunity cost of holding gold, a non-interest-bearing asset, enhancing its attractiveness to investors.

It is worth noting that this yield correction was largely driven by progress in US-Iran negotiations. Following US President Trump's statement that negotiations to end the war with Iran had entered their final stage, the sentiment in the bond market began to subtly shift. Market sentiment is gradually moving away from Trump's current push for interest rate cuts.

Geopolitical Fog: "Positive Signs" at the Negotiating Table and Insurmountable Red Lines

To understand the current macroeconomic environment for gold, it is essential to delve into the negotiation landscape in the Middle East. Currently, the complexity of this game far exceeds what is apparent on the surface.

On the positive side, US Secretary of State Rubio signaled "some positive signs" in the negotiations to the media on Thursday. Pakistan, as one of the main mediators, is working to streamline communication and accelerate progress. However, the differences between the US and Iran remain a deep and unfathomable chasm. First is the issue of uranium stockpiles. Second is the struggle for control of the Strait of Hormuz. Iran announced the establishment of a new "Persian Gulf Straits Authority" to oversee this strategic waterway carrying one-fifth of the world's oil and gas. The US firmly opposes any form of toll system, and Trump emphasized that this is an international waterway that must remain open and free. Rubio went even further, stating that a diplomatic solution would be unfeasible if Iran implemented a toll system.

More worryingly, Trump's patience is rapidly wearing thin. He has clearly stated that he is prepared to resume strikes against Iran if he does not receive the "right response" from the Iranian leadership. The Iranian Revolutionary Guard, in turn, has warned of a wider-ranging retaliation should another attack be launched. This tit-for-tat tension means that any slight movement could trigger a sharp market reaction.

Rate Hike Expectations Quietly Rise: A Damocles' Sword Hanging Over Gold

When analyzing the future of gold, the direction of the Federal Reserve's monetary policy is a crucial variable that cannot be ignored. According to the CME Group's FedWatch tool, traders currently expect a 58% probability of at least one rate hike by the Fed by the end of 2026, a significant increase from 48% the previous day. Specifically, the market's implied probability of a rate hike in December has reached approximately 60%.

This rising expectation of a rate hike stems from the continued inflationary effect of war. Despite a recent pullback in oil prices, Brent crude remains firmly above $100, well above pre-war levels. This high energy price environment is eroding consumer purchasing power, and consumers are feeling the pressure of high oil prices. Retail price inflation is expected to rise slightly in the second quarter and the second half of the year.

However, it's not all bad news for gold bulls. Interest rates will remain high for the remainder of the year, and the yield curve will likely remain roughly at its current level. This means that once the market has fully priced in rate hike expectations, their marginal negative impact on gold may gradually diminish. Meanwhile, the US labor market remains resilient, with initial jobless claims falling last week. This gives the Federal Reserve room to focus on combating inflation, but also means the economy is not in recession, and the safe-haven demand for gold will not see a full-blown surge in the near future.

Macroeconomic Shadows: Global Growth Slowdown and the US's "Relative Advantage"

Looking globally, the ripple effects of war are becoming apparent in multiple economies. Eurozone economic activity contracted by the largest margin in over two and a half years in May. British businesses are experiencing their broadest contraction in over a year. Japanese manufacturing growth slowed slightly, while service sector growth stalled for the first time in over a year.

These weak Purchasing Managers' Index (PMI) data exacerbated market concerns about a deterioration in global economic growth. However, this divergence has had a complex impact on the dollar and gold. Nearly three months have passed since the oil shock, a time when global economic growth typically begins to show signs of slowing, leading to caution regarding currencies affected by global economic growth. A stronger US growth outlook has further reinforced the case for the Federal Reserve to tighten policy, thus pushing up the dollar's exchange rate.

This means that although gold received support from a weaker dollar in late last week, in the medium term, the relative strength of the dollar may still limit the upside potential for gold prices. For gold to embark on a sustained upward trend, a simultaneous decline in the dollar and real yields is needed, which often requires the Federal Reserve to shift to a rate-cutting cycle—a seemingly distant prospect in the current inflationary environment.

Market movements will depend on rumors or actual agreements announced regarding Iran.

In the short term, market movements will depend on rumors or actual agreements announced regarding Iran. This highly sensitive situation is actually relatively favorable for gold. The fragile ceasefire agreement remains in place, and the possibility of de-escalation persists, which is a positive sign. However, outside of Iran and the core circles within the United States, no one knows how much actual progress has been made.

This information asymmetry and high degree of uncertainty are precisely the classic scenarios in which gold fulfills its safe-haven function. Whenever the market reacts sharply to a piece of geopolitical news, gold becomes one of the safe havens for funds.

Conclusion:

Gold stands at a crossroads, awaiting the dissipation of the Middle East fog.

In summary, the current gold market is at a crossroads where multiple forces are pulling in different directions. Short-term support factors are clearly visible: the pullback in oil prices from their highs has eased extreme inflation fears; the dollar index encountered resistance at a six-week high; US Treasury yields experienced a technical correction after a violent surge; and geopolitical negotiations could take an unexpected turn at any time. These factors combined have helped gold prices find temporary equilibrium around the $4,500 level.

For gold investors, the next few days to weeks will be crucial. Whether the US-Iran negotiations will lead to a substantial breakthrough or break down again, whether a compromise can be found for the passage fee dispute in the Strait of Hormuz, and where Trump's patience ends—the answers to these questions will directly determine the next direction of oil prices, which will then be transmitted to the gold market through three channels: inflation expectations, monetary policy path, and risk aversion.

However, for patient long-term investors, the current price level may be gradually approaching an attractive allocation range. After all, deep-seated geopolitical conflicts cannot be resolved overnight, and gold's value as the ultimate safe-haven asset will never be forgotten by the market in such turbulent times.

The Strait of Hormuz passage is gradually opening, and oil prices are undergoing a short-term adjustment.

The hardline rhetoric between the US and Iran has failed to create significant waves, and oil prices have seen a noticeable decline. Market focus has shifted to the navigation situation in the Strait of Hormuz under the new shipping rules established by the gradual passage of oil tankers from various countries.

Last week, US President Trump made it clear that if Iran refuses to sign a peace agreement, the US may launch a military strike within the next two to three days. Vice President Vance simultaneously emphasized that the US military action against Iran remains "ready to launch" and can resume its offensive at any time.

However, as previously discussed, the chances of a renewed war between the US and Iran are very low, and oil prices reflect this market expectation. The main factor influencing oil prices is the recovery of shipping capacity in the Strait of Hormuz.

The Iranian Revolutionary Guard Navy announced on Wednesday that 26 ships, including oil tankers, container ships, and other commercial vessels, passed through the Strait of Hormuz in the past 24 hours under coordination. The Revolutionary Guard Navy added that passage through the strait is ongoing, provided that relevant permits have been obtained and coordination with the Revolutionary Guard has been completed.

India plans to restart direct shipping routes, overcoming dual approvals to advance crude oil purchases.

As the world's third-largest crude oil importer, India's shipping trends have become a market focus.

Several industry insiders revealed on Wednesday that India plans to dispatch empty oil tankers into the Strait of Hormuz to complete crude oil purchases and shipments to Gulf oil-producing countries—this marks India's first attempt to conduct oil and gas loading operations on the western side of this energy shipping hub since the outbreak of geopolitical conflict with Iran.

Although navigation in the Strait of Hormuz has been disrupted for nearly eighty days, with shipping order almost at a standstill, some Gulf crude oil freight routes have remained open, a move that likely has the tacit approval of both the US and Iran.

From a practical perspective, the Indian fleet needs to overcome two hurdles: first, obtain permission from the US to pass through the blockaded area of ​​the Gulf of Oman, and then obtain clearance from Iran before reaching export ports along the Persian Gulf. The resumption of direct shipping is crucial for reducing import costs, but more importantly, it indicates that the new mechanism for strait passage is now operational.

Frequent changes in international shipping activity indicate a marginal improvement in the Strait of Hormuz's shipping capacity.

Last week, the Iranian Revolutionary Guard Navy announced that 26 vessels, including oil tankers, container ships, and other commercial vessels, had transited the Strait of Hormuz in the past 24 hours under coordinated arrangements. The Navy added that passage through the strait is ongoing, provided that relevant permits have been obtained and coordination with the Revolutionary Guard has been completed.

South Korea confirmed that an oil tanker carrying 2 million barrels of crude oil has safely passed through the strait after coordination with Iran. The South Korean Foreign Minister stated that the tanker is cautiously completing the remaining transit procedures.

Data from British shipping agencies provides a more direct reflection of the recovery trend: Lloyd's Daily Ship cited data on May 19th showing that 54 ships transited the strait between May 11th and 17th, more than double the 25 ships of the previous week. Among them, a liquefied natural gas carrier belonging to Abu Dhabi National Oil Company of the UAE entered the Gulf with its Automatic Identification System (AIS) turned off. Wenward Maritime Analysis also reported that, furthermore, agency data shows that two supertankers carrying 6 million barrels of Middle Eastern crude oil each sailed out of the strait last week, and another is currently en route; these tankers have been waiting in the Persian Gulf for more than two months.

Iran's Tasnim News Agency reported that Iran has released video footage of drones targeting oil tankers that were not properly coordinated to pass through the Strait of Hormuz, and explicitly stated that illegal and concealed oil tankers at the entrance to the Strait of Hormuz have been identified and punished. This control measure, combined with the practice of multinational negotiations on navigation, forms a new navigation model of "bilateral consultation + compliant passage."

Although the United States continues to impose a blockade on ships entering and leaving Iranian ports, the strait's shipping capacity has significantly improved, and the pressure on the global crude oil supply chain has been marginally alleviated.

Inventory declines continue to exceed expectations, providing strong support for fundamentals.

Data from the American Petroleum Industry Association (API) on Tuesday showed that U.S. crude oil inventories fell by a net 9.1 million barrels in the week ending May 15, significantly higher than the market expectation of 3.4 million barrels, and following a reduction of 2.18 million barrels the previous week. The continuous and significant decline in inventories reflects a tight supply and demand situation for crude oil, and the market is awaiting further guidance from the official inventory data from the U.S. Energy Information Administration (EIA) on Wednesday evening.

Conclusion:

The market is currently focused on the passage through the Strait of Hormuz, downplaying the hardline stances of both the US and Iran. Meanwhile, declining inventories are in line with market expectations.

As mentioned in previous articles, the central price level for oil is slowly shifting upwards. However, if the price increase is driven by geopolitical risks, such as aggressive statements from the US and Iran, it is likely just a sentiment peak, as the "boy who cried wolf" scenario will ultimately unfold, causing a false alarm in the market.

Overview of Important Overseas Economic Events and Matters This Week:

Monday (May 25): UK May Nationwide House Price Index (MoM) (%); Canada's National Economic Confidence Index (up to May 22); US Memorial Day, markets closed.

Tuesday (May 26): Australia's ANZ Consumer Confidence Index (week ending May 24); UK's May CBI Retail Sales Balance; US ADP Employment Change (in thousands) (week ending May 9); US Conference Board Consumer Confidence Index (May).

Wednesday (May 27): Australia's April Bureau of Statistics CPI (YoY - Seasonally Adjusted) (%); New Zealand's Official Cash Rate Decision (%) (May 27); Reserve Bank of New Zealand Governor Brehman's Monetary Policy Press Conference; Bank of Japan Governor Kazuo Ueda speaks at a monetary policy conference hosted by the Bank of Japan.

Thursday (May 28): Eurozone May Economic Sentiment Index; Eurozone May Consumer Confidence Index (Final); US April PCE Price Index (YoY) (%). US Q1 Real GDP Annualized Quarterly Rate Revised (%); US Q1 Consumer Spending Annualized Quarterly Rate Revised (%); US April Durable Goods Orders Monthly Rate (Preliminary) (%); US Initial Jobless Claims for the Week Ending May 18 (in thousands); US April Seasonally Adjusted New Home Sales (annualized) (in thousands); ECB Releases Minutes of April Monetary Policy Meeting

Friday (May 29): Japan May Tokyo CPI YoY (%); Japan April Unemployment Rate (%); US April Wholesale Inventories Monthly Rate (Preliminary) (%); US May Chicago PMI; Canada Q1 GDP Annualized Quarterly Rate (%)

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