06:00 shockwave, the real verdict left for tonight

— Removing war trades doesn’t mean the war risk has already disappeared.

Global markets opened Monday (06:00 Beijing time) with a major shock:

Oil prices plunged 5% at the open, and the drop widened to as much as 8% at one point;

U.S. stock futures gapped higher at the open, recovering all losses from last Friday;

Gold gapped up by over $30, probing the $4,100 level;

The yield on the 10-year U.S. Treasury tumbled sharply to around 4.63%;

The U.S. dollar index gapped lower and is still above the 101 level.

First, the Iran-U.S. reciprocal strikes have temporarily paused, boosting market risk appetite, but the market move is far more intense than people imagined—“in one go” it unwound last week’s most crowded war trades. The current problem is that Iran and the U.S. are only “conditionally refraining from attacks,” which still isn’t a formal, stable, verifiable ceasefire, yet the trades appear to be treating it as “a ceasefire agreement has been reached again.” The information coming out of Iran is that as long as the U.S. continues to pause, Iran will also pause its retaliation; meanwhile, diplomatic mediation is underway, but the Strait of Hormuz, Red Sea shipping, and the nuclear issue have not been resolved.

Second, judging by the magnitude of the oil price drop, it shows the market had built up a huge war premium beforehand. The more violently it falls, the more it indicates this isn’t a slow-growing new trend, but a stampede-style retreat after positions were concentrated. So today’s oil price may see two phases of action:

In the Asia session, first fill the market’s ceasefire expectations, leading to panic position closures;

In the Europe and New York sessions, traders begin asking: is this a permanent ceasefire, or a short pause left by Trump for negotiations?

Third, the timing of this reversal matters—it’s a reversal triggered after U.S. Treasury yields touched 4.7%, a level that has become Trump’s new line of defense (previously 4.66%). If it’s read again near that level next time, it may again trigger a change in Trump’s behavior.

Fourth, the dollar is still above 101, which is evidence the market hasn’t fully bought into the ceasefire. Money has only taken off part of the war positions—it hasn’t fully exited its dollar safe-haven positions, and there is still some retention. 101 is a very important dividing line today: if it breaks below 101, it would suggest a more credible rebound in global risk assets; if it holds above 101 and climbs again, it indicates the market still views this pause as a tactical interruption, and the oil price and U.S. stock early-session gaps may narrow.

Fifth, from Trump’s perspective, he has motivation to keep pressuring oil prices this week up to before the Federal Reserve announces its rate decision on Thursday (02:00 Beijing time). Keeping oil prices elevated will not only push up inflation expectations and U.S. Treasury yields again, but could also provide reasons for shaping the hawkish stance maintained by the Fed, or even for releasing signals of rate hikes. Trump may not be able to drive the Fed’s decision, but at least he doesn’t want to personally give the Fed another reason to hike before the rate decision.

Everything awaits verification in the evening; the stronger the move at Monday’s open, the more important the verification in the New York session will be.