June 5, 2026—The US May Nonfarm Payrolls report (Nonfarm Payrolls June 2026 Fed) is set to be released this evening Beijing time. Meanwhile, gunfire along the US-Iran border has not fully subsided despite the ceasefire agreement reached on April 8. Over the past week, both sides have engaged in multiple rounds of renewed attacks near the Strait of Hormuz.
This conflict, which began on February 28, 2026, has seeped into the world’s core asset pricing models in a way that "even a ceasefire cannot de-escalate." For investors holding positions in gold, oil, US Treasuries, or even crypto assets, understanding this transmission chain is no longer an elective course in geopolitics—it is a required class that determines portfolio returns.
Fuse Reignited: The "Ceasefire" in the Strait of Hormuz Is in Name Only
On February 28, 2026, the US and Israel launched a joint military operation against Iran, codenamed "Epic Fury." Iran’s Supreme Leader was killed in the attack, triggering a full-scale war. On April 8, a fragile ceasefire agreement was reached, and the Strait of Hormuz temporarily reopened for passage.
But the ceasefire has not truly cooled tensions.
From June 1 to 3, the conflict escalated sharply again. US military aircraft used "Hellfire" missiles in international waters of the Persian Gulf to disable the oil tanker "LEXIE," which was heading to Iran, citing repeated disregard for warnings and refusal to comply with orders. In response, Iran’s Islamic Revolutionary Guard Corps launched coordinated missile and drone strikes on the US Fifth Fleet headquarters in Bahrain, as well as military bases in Kuwait and the UAE.
The US military then conducted airstrikes on Iranian communications facilities on Qeshm Island, prompting Iran to expand its attacks to additional US targets in the region. Kuwait International Airport suspended operations, and airports in Bahrain and the UAE were temporarily closed.
As of June 5, sporadic clashes continue. US President Trump, in an interview, drew a clear "red line"—if any US soldiers are killed in Iranian attacks, he will "very quickly" terminate the ceasefire agreement and return to a state of war.
Politically, peace talks are also making little headway. The main sticking points are threefold: the future of Iran’s nuclear program, ceasefire conditions on the Lebanese front, and control over navigation in the Strait of Hormuz. Iran has repeatedly asserted control over the Strait, emphasizing that "hostile nations’ ships cannot pass," while the US announced on the same day that it had intercepted Iranian merchant vessels and taken countermeasures.
Several analysis firms note that Iran’s demand is to end "all fronts of war," including Lebanon, as a precondition for negotiations with the US. The US, on the other hand, is demanding comprehensive concessions from Iran on the nuclear issue.
In short, the ceasefire is only a temporary respite. The market must continue to price in the risk of prolonged conflict.
First Transmission Layer: Crude Oil—The Biggest Inflation Input of 2026
Among all transmission paths, crude oil is both the starting point and the most heavily weighted variable.
The impact of the US-Iran conflict on oil prices is magnified through two channels: direct military strikes creating supply disruption expectations, and impeded passage through the Strait of Hormuz.
Current Price Levels: As of early June, Brent crude is trading at a high range of $94–$95 per barrel, while West Texas Intermediate (WTI) is around $92. Since the outbreak of war, US gasoline prices have risen by about 45%.
Quantifying the Supply Shock: HFI Research notes that the current US-Iran war has caused the largest recorded oil supply disruption. Even if both sides sign a peace agreement immediately, it would take considerable time to restore supply. According to Abu Dhabi National Oil Company estimates, restoring about 80% of reduced supply would take at least four months.
Sustainability of High Prices: Data from the International Energy Agency shows US Strategic Petroleum Reserves have dropped to about 357 million barrels, the lowest in nearly two years. This means that if supply tightens further, there is very little buffer left.
It’s important to note that while oil prices remain elevated, the market is still pricing in a scenario of "limited conflict" rather than "full-blown war out of control"—unlike earlier extreme forecasts that saw Brent crude surging to $130–$150 per barrel.
However, HFI Research warns that the market is "overly complacent." Major US stock indices are trading near historical highs, but the market has yet to fully price in the potential economic and asset shock from persistently high oil prices. If high prices persist, we could see pressures similar to the 1973 oil crisis—when the S&P 500 fell about 48% from peak to trough and took roughly seven years to fully recover.
Second Transmission Layer: Inflation—From Energy Prices to Broad-Based Price Increases
Rising oil prices already create inflationary pressure, but what makes 2026 unique is that this pressure is not isolated.
Latest Inflation Readings: In April, US CPI rose 3.8% year-over-year, the largest annual increase in about three years. The Fed’s preferred PCE price index also rose 3.8% year-over-year in April, the highest since 2023.
Transmission Pathways: Energy price increases have spread through two secondary channels—first, higher prices for production inputs like fertilizers and industrial equipment, passing through to a broader range of goods; second, rising transportation costs, which directly impact end-consumer prices.
Meanwhile, the April ISM Services PMI came in at 54.5, up from 53.6, indicating that service sector inflation remains sticky. Against this backdrop, JPMorgan has revised its policy outlook, now expecting the Fed to hold rates steady throughout 2026, with the next move more likely to be a 25-basis-point hike rather than a cut.
The IMF has also urged the Fed to remain cautious on rate decisions and predicts that US inflation will not return to the 2% target until the end of 2027, rather than mid-2027. From the IMF’s perspective, the inflationary risks from energy price shocks have not dissipated, and the spillover from rising tariff costs is also intensifying.
Third Transmission Layer: The Fed—"Higher for Longer" Becomes "No Cuts in 2026"
High oil prices combined with strong inflation data have directly impacted market expectations for the Fed’s 2026 rate path. This adjustment in expectations is the single most critical variable in the current multi-asset repricing.
Federal Funds Rate Status: The current federal funds rate target range is 3.50%–3.75%. Newly appointed Fed Chair Kevin Warsh was recently sworn in at the White House and will preside over his first FOMC monetary policy meeting on June 16–17.
Complete Disappearance of Rate Cut Expectations: Before the US-Iran war (early February), rate markets were pricing in about three rate cuts. But since the war’s outbreak at the end of February and the effective closure of the Strait of Hormuz, expectations have reversed 180 degrees. Interest rate swap markets now show traders fully pricing in at least one 25-basis-point Fed rate hike by the end of 2026—the first time since the current hiking cycle ended that a hike is fully priced in.
This means that if you allocated assets at the start of the year assuming "2–3 rate cuts in 2026," you now need to completely revise that premise.
Dot Plot Reassessment: The Fed will update its quarterly economic projections and dot plot at the June FOMC meeting. The base case: the single rate cut projected for 2026 in the March dot plot will likely be removed this month, and the 2027 cut could also evaporate. Some analysts believe the new dot plot could even tilt toward the market’s expectation of a hike.
Shift in Officials’ Stance: Fed Governor Christopher Waller recently stated that the central bank should clearly signal that "the next move is more likely to be a hike than a cut." Waller’s comments sent short-term Treasury yields sharply higher, with the 2-year yield climbing to 4.14%—the highest since February 2025.
San Francisco Fed President Mary Daly took a more neutral stance, saying that current monetary policy is "in a good place," but given high economic uncertainty, the Fed will not provide explicit forward guidance on future rate paths.
Fourth Transmission Layer: US Treasuries and the Dollar—Rising Yields and Rate Hike Expectations in Sync
The sharp reversal in Fed policy expectations has directly transmitted to the US Treasury yield curve and the US dollar exchange rate.
US Treasury Yields Climb: Since the outbreak of the US-Iran war (late February), the 10-year Treasury yield has risen about 65 basis points, reaching 4.60% in early June—the highest since early 2025. The 2-year yield has jumped more than 70 basis points from pre-war lows, breaking above 4%, also the highest since early 2025.
The yield curve now reflects a market pricing in a "higher for longer" or even "higher still" rate path. The bond market’s trading logic has shifted from betting on rate cuts to "inflation trades"—yields are rising across all maturities, reflecting expectations for a higher long-term inflation anchor.
Dollar Strengthening Logic: When the Fed holds rates high or even considers hiking, the dollar enjoys ongoing yield support. For portfolios holding non-USD assets or crypto, this creates a double squeeze—valuation pressure (higher discount rates) and FX pressure (a stronger dollar weighs on assets priced in other currencies).
Fifth Transmission Layer: Gold—A Triple-Driven Super Bull Market
Against the backdrop of the US-Iran conflict fueling inflation and the Fed postponing cuts (or even shifting to hikes), gold has shown a superficially paradoxical performance—it is indeed suppressed by high rates, but dual support from geopolitical risk aversion and central bank buying is dominating price trends.
Gold’s Current Price and Targets: At present, gold is trading around $4,447 per ounce, having fluctuated throughout the year—hitting a high of about $5,300 in 2026 before pulling back on market adjustments.
As for future targets, mainstream investment banks’ forecasts cluster at the high end. According to a Reuters survey, the average 2026 gold price forecast from 31 institutions is $4,916 per ounce, a notable increase from the previous $4,746. Morgan Stanley maintains a year-end target of $5,200. Goldman Sachs has raised its target to $5,400, UBS forecasts around $5,900, and JPMorgan and Wells Fargo are even more bullish, projecting $6,300.
Breaking Down the Triple Drivers:
First, geopolitical risk aversion. The World Gold Council notes that persistent geopolitical tensions are a core reason for continued investor demand for gold in 2026. As the US-Iran conflict repeatedly escalates, gold’s status as the "ultimate safe haven" is gaining weight in institutional portfolios.
Second, structural central bank buying. In March 2026, China’s central bank added a net 5 tons of gold, continuing a multi-year trend of reserve diversification. In 2025, global central banks bought about 850 tons of gold—lower than the 1,000+ tons seen annually from 2022–2024, but still well above historical averages. World Gold Council surveys show up to 95% of reserve managers expect global central bank gold reserves to continue rising over the next 12 months.
Third, inflation hedging. With US CPI back at 3.8% due to surging oil prices, gold’s appeal as a traditional inflation hedge is strengthening.
It’s worth noting that TD Securities recently trimmed its gold price forecast for the second half of the year by 3% to $4,550 per ounce, mainly because the market is pricing in Fed rate hikes, which puts some pressure on gold. But overall, most institutions believe structural central bank buying and risk aversion are sufficient to offset the negative impact of rising rates.
Final Transmission: Crypto Assets—A Dual Test of Liquidity Expectations and Risk Appetite
Crypto assets occupy a unique niche in this multi-asset repricing. They benefit from the "digital gold" narrative to some extent, but are highly sensitive to Fed policy expectations in terms of liquidity.
BTC Price Current Performance: Bitcoin is currently quoted at about $62,846, down roughly 10.73% over the past 30 days and -33.74% over the past year. Ethereum is trading around $1,701, also under pressure year-to-date.
Two-Layer Transmission Mechanism:
First, liquidity and rate expectations. When the market shifts from expecting "rate cuts in 2026" to "potential hikes in 2026," the valuation anchor for risk assets is comprehensively reappraised. Higher risk-free rates mean higher capital costs, and for highly volatile asset classes, the pressure for capital outflows is most direct. The fact that rate futures are fully pricing in a hike this year means this headwind is unlikely to reverse in the short term.
Second, the dollar and risk appetite. When the dollar strengthens on hawkish Fed expectations, the relative appeal of dollar-denominated crypto assets in global portfolios declines. Meanwhile, repeated flare-ups in geopolitical conflict also suppress risk appetite—when conflict escalates, capital tends to flow out of high-volatility assets and into safe havens like gold and Treasuries.
The Decisive Role of Nonfarm Data: The upcoming May Nonfarm Payrolls report will be a key variable for the Fed’s next policy decision. According to economists’ consensus, May nonfarm payrolls are expected to rise by 85,000, with unemployment holding at 4.3%, and average hourly earnings up 0.3% month-over-month and 3.4% year-over-year.
Asset impact logic for different data scenarios:
- Significantly Weaker Than Expected (much lower job gains, rising unemployment): Rate cut expectations intensify, the dollar weakens, and looser liquidity expectations drive a crypto rebound.
- In Line With Expectations (job gains around 70,000–90,000): The Fed remains in "wait and see" mode, market focus returns to geopolitics and inflation, and crypto enters a choppy range.
- Significantly Stronger Than Expected (job gains much higher, unemployment falls): Rate hike expectations strengthen further, the dollar rallies, and high-valuation risk assets like crypto face added pressure.
Specifically for Bitcoin, current analysis centers on the idea that weaker nonfarm data could briefly trigger rate cut expectations and spark a price rebound, but weak data itself could stoke recession fears, prompting safe-haven flows out of BTC and other risk assets.
Risk Warning
Investors should recognize that the core uncertainty facing multi-asset pricing today is not a single data miss, but the intersection of three forces:
First Uncertainty: The trajectory of Middle East conflict. A fragile ceasefire could break at any unexpected clash, and if US troops are killed, Trump has made clear he will "quickly" resume full-scale war. In that scenario, oil could break above $150, creating a fundamental shock to the global inflation anchor. HFI Research has already warned that if high oil prices persist, we could see a "double whammy" for stocks and bonds reminiscent of the 1970s.
Second Uncertainty: The timing of a Fed policy pivot. A tail risk that markets have not fully priced: If inflation, driven by oil, stays above 3.5% while the jobs market remains resilient, will Warsh’s Fed really be willing to completely remove the "rate cut bias" at its first meeting? Will the dot plot flip from "one cut" to "one hike"? If so, risk asset repricing could be far more severe than currently expected.
Third Uncertainty: The tension between nonfarm data and inflation. The current 4.3% unemployment rate and 3.8% CPI create a dilemma for monetary policymakers—the labor market is still tight, but price pressures are well above target. This "stagflation tendency" renders the Fed’s traditional reaction function ineffective: there’s no clear basis for either cuts or hikes.
This means that asset allocation for the second half of 2026 will require dynamic adjustments in a higher-volatility environment, with close attention to every inflection point in the Middle East and every nuance in Fed policy language.
Conclusion
The asset repricing triggered by the latest US-Iran conflict is not a short-term blip driven by a single geopolitical event, but rather a systemic chain reaction: "energy shock—inflation repricing—rate path reversal—dollar strengthening—risk asset compression." As oil prices remain elevated on Hormuz risk premiums and the inflation anchor is forced higher, the Fed’s policy framework has rapidly shifted from a "rate cut cycle" to a "high rates or even renewed tightening" stance, moving the global asset pricing anchor in the process. During this transition, gold is redefining its historical valuation range amid the tug-of-war between risk aversion and real rates, the US Treasury yield curve is steepening again, and crypto assets are entering a phase of high-volatility repricing under the dual pressures of tighter liquidity and waning risk appetite.
The real focus should not be on the ups and downs of any single asset, but on the renewed correlations across asset classes. As inflation and geopolitical risks rise in tandem, traditional "stock-bond hedging" and "risk diversification" assumptions are being eroded, and portfolio management is returning to a macro factor-driven framework. The next phase’s key market variables will not be price itself, but whether the Fed is forced to make more aggressive trade-offs between growth resilience and inflation pressure, and whether the Middle East shifts from "manageable conflict" to "energy supply shock." Until that path is clear, all assets remain in a state of repricing.
