In a dramatic escalation of Middle East tensions, the United States and Israel launched coordinated airstrikes on Iranian nuclear facilities over the weekend, igniting fears of broader conflict and market turmoil.

The strikes targeted Iran’s Fordow, Natanz, and Isfahan sites, reportedly using 75 precision-guided munitions and Tomahawk missiles. US President Donald Trump claimed the attack caused “monumental damage” and suggested regime change in Tehran as a new objective.

Iran retaliated by launching missiles at Israeli targets, damaging parts of Tel Aviv. Though casualties were unconfirmed, Iran threatened to close the Strait of Hormuz, a vital artery for global oil flows, sending Brent crude prices to $78.93 and West Texas Intermediate to $75.73, their highest levels in five months.

Oil Prices Surge Amid Supply Risk Fears

Global oil markets spiked on Monday as fears mounted over potential supply disruptions. Iran’s parliament has approved a measure to close the Strait of Hormuz, through which 20% of the world’s oil transits, though the final decision rests with its Supreme National Security Council. While some analysts, including Goldman Sachs, warn Brent could climb to $110 if the strait’s flows are halved, they anticipate limited lasting disruption due to the high geopolitical stakes.

ZAR Holds Steady as Investors Weigh Risks

Despite rising geopolitical tensions, the rand remained stable, with the USD-ZAR hovering around 18.1050. Analysts suggest the market is taking a wait-and-see approach, with many investors reluctant to act before gauging Iran’s next move. A technical floor around 17.70 remains intact, while resistance builds toward 18.1900.

The relative calm may not last. If Iran acts to close the Strait of Hormuz or launches more aggressive retaliation, volatility is likely to spike, potentially reversing ZAR strength and reigniting inflation concerns domestically.

Bonds Watch Oil and Geopolitics, Not Data

South African bond markets are focusing squarely on oil prices and geopolitical developments. While US Treasury yields have remained steady, investors are wary of the inflationary impact of surging oil prices.

Should Iran’s threats materialise, the ZAR price of oil will rise, worsening inflation and reducing the South African Reserve Bank’s (SARB) room for policy easing.

Forward rate agreements (FRAs) suggest a single rate cut remains likely this year, but further cuts may be off the table if inflation risks intensify. The 3×6 FRA vs 3m JIBAR spread at -25bp implies a September rate cut is still possible, but the 6×9 spread signals no further easing beyond that.

Bond Markets Cautious as Rate Cut Bets Grow

In another blow to sentiment, South Africa dropped to 64th out of 69 countries in the latest global competitiveness rankings. The report cited chronic issues including poor infrastructure, elevated unemployment, rising debt levels, and ongoing governance challenges.

The findings underscore the urgent need for structural reform and improved policy execution if South Africa hopes to reverse its economic stagnation and attract meaningful investment.

Precious Metals Mixed; Cobalt Ban Extended

Gold edged lower despite its usual safe-haven appeal, as a stronger US dollar overshadowed geopolitical concerns. Spot gold dipped to $3,362.29/oz. However, silver, platinum, and palladium saw marginal gains.

Meanwhile, the Democratic Republic of Congo extended its cobalt export ban by another three months. This move, aimed at stabilizing prices after a market glut, will continue to pressure battery metal markets amid the global green energy push.

Iran’s Diplomatic Push Faces Global Divide

In the wake of the strikes, Iran’s Foreign Minister Abbas Araqchi travelled to meet Russian President Vladimir Putin, seeking strategic alignment. Russia and China, key Iranian allies, have urged restraint and called for a UN-brokered ceasefire.

However, the prospects for de-escalation remain unclear, especially with the US doubling down on its stance and Israel signaling continued pressure for regime change

Global Macro Outlook: US and Japan PMI in Focus

While geopolitical news dominates headlines, economic data releases this week may still sway markets. The US will publish preliminary June PMI figures, with expectations of slight cooling in both manufacturing and services sectors. Japan’s PMI readings showed manufacturing returned to expansion after 11 months of contraction, while services continued growing, reflecting cautious optimism despite US tariff concerns.

Looking Ahead

Markets now await Fed Chair Jerome Powell’s testimony and US core PCE data later in the week. With tariffs, conflict, and inflation risks all in play, the path for monetary policy remains fraught.

In the near term, the global economy and market sentiment will be shaped more by missiles than by macro data.