US retaliatory strikes on Iran after attacks on Navy destroyers in Strait of Hormuz threaten fragile ceasefire but Trump-Xi summit still on. Iran escalation will dominate talks, with China's energy security at risk. Oil markets react, ceasefire holds for now.

Markets are surprisingly sanguine on Iran escalation, with yields near 5% and oil up, but volatility remains muted. Investors are betting on US de-escalation efforts. Yen intervention has stabilized the currency, but a wider yield gap and Japan's oil import costs remain key. A Mideast stabilization is crucial for yen and broader Japanese market relief.

Labor market stabilizing but fragile; Fed hold + 4.4% yields to slow economy, AI layoffs may push unemployment up by Q4. US energy independent, natural gas falling domestically vs Asia spike, so oil shock impact muted. Gas price pain delayed until Oct-Nov due to Trump tax refund runway.

Iran conflict: US seeks phased deal (ceasefire, Strait reopening), not grand bargain. Nuclear ambitions likely deferred due to harder-line regime & internal power struggles. New Supreme Leader's influence uncertain amid collective decision-making. Iran strategically stronger: demonstrated Strait leverage, can withstand sanctions. Expect sanctions relief, but long-term threat persists. Naval blockade duration plausible.

Ceasefire fragile; US-Iran de-escalation signals but risk of lower-intensity conflict with sharp violence upticks persists. Markets lack predictability for oil flows. Beijing gains leverage from US munitions drawdown, sees opportunity to demonstrate stability.