Geopolitical Tensions Escalate: Kyiv Under Drone Attack, Ukraine Strikes Russian Naval Base

## Lead Geopolitical tensions remain elevated with Kyiv experiencing drone attacks and Ukraine claiming strikes on Russia's Novorossiysk Naval Base. Oil prices are fluctuating amidst uncertainty surrounding the Strait of Hormuz, while US equity futures show mixed movements ahead of CPI data. ## Session narrative The European midday session is marked by a significant uptick in geopolitical concerns. Kyiv is reportedly under drone attack, with explosions heard across the city. This follows Ukraine's President Zelenskiy stating that Ukraine successfully hit Russia's Novorossiysk Naval Base with drones, missiles, and unmanned boats overnight. These developments add to an already tense global environment, which saw a container ship hit by a missile in the Gulf of Oman and shipping traffic through the Strait of Hormuz significantly reduced. Iran's new security chief has reiterated that the Strait of Hormuz will remain closed until the US meets Iranian demands, further fueling uncertainty in energy markets. The International Energy Agency (IEA) has forecasted a 1.8 million bpd oil market deficit in Q3, contributing to the volatility in crude prices. Brent crude is currently up 0.045% at $88.95, while WTI crude is down 0.2404% at $83.00. In the equity markets, US futures are showing mixed movements as investors await the release of crucial US CPI data later today. Nasdaq futures are leading the gains, up 0.7055%, followed by S&P futures, which are up 0.2743%. Dow futures are also in positive territory, up 0.1095%. This cautious optimism comes despite the global geopolitical backdrop. The US 10-year yield has seen a slight decline, down 0.3192% to 4.68%. In central bank news, the People's Bank of China (PBoC) continues to implement a moderately loose monetary policy, as indicated in its Q2 monetary policy implementation report. ## Cross-asset check Equity futures are mixed, with Nasdaq futures up 0.7055% and S&P futures up 0.2743%. The US 10-year yield is down 0.3192% to 4.68%. In commodities, Brent crude is up 0.045% to $88.95, while WTI crude is down 0.2404% to $83.00. Gold is up 0.8286% to $4477.9. The US Dollar Index is up 0.008% to 99.84. EUR/USD is down 0.0606% to 1.1539, and USD/JPY is down 0.086% to 159.132. ## Themes & continuing stories The dominant theme remains escalating geopolitical tensions, particularly in Eastern Europe and the Middle East. The drone attacks on Kyiv and Ukraine's strike on the Russian naval base highlight the ongoing conflict. Simultaneously, the situation around the Strait of Hormuz continues to be a critical concern for global energy markets, with Iran's conditions for reopening the strait. This uncertainty is directly impacting oil prices and global shipping. The upcoming US CPI data release is another significant theme, with investors closely watching for inflation signals that could influence future monetary policy decisions. ## What’s ahead Later today, the US will release its CPI data, which is expected to be a key market mover. Traders will be looking for any surprises that could impact inflation expectations and the Federal Reserve's policy outlook. The ongoing geopolitical developments in Ukraine and the Middle East will also continue to be closely monitored for any further escalation or de-escalation that could affect commodity prices and broader market sentiment.