Gulf Security Crisis: Saudi Arabia Warns of Imminent Coordinated Attacks

The Gulf security picture darkened further on Friday as a senior Saudi official told both CNN and Reuters that the kingdom expects multiple coordinated attacks imminently. According to Saudi officials, Iran's Revolutionary Guard Corps (IRGC), Yemen's Houthis, and Iraqi militias are converging from the north, south, and east. Targets are said to include civilian, energy and oil facilities, economic sites, critical infrastructure, airports, and ports. Saudi officials reported that drones and missiles are being observed in motion, consistent with preparations for a three-pronged operation. The reported target list spans the same categories hit in the September 2019 Aramco attacks, which temporarily knocked out roughly half of Saudi oil production and demonstrated the vulnerability of the kingdom's energy infrastructure to drone and missile strikes.

Saudi Arabia warned that the imminent attacks aim to derail Iran de-escalation talks.

Against this backdrop, Saudi Arabia, Turkey, and Pakistan are set to sign a joint defence agreement in Jeddah on Friday, according to sources close to the Saudi military and government. The agreement notably brings Pakistan, the Muslim world's only nuclear power, into a formal defence arrangement with Riyadh at a moment of acute regional risk.

Oil prices ticked higher as Houthi-Saudi tensions built, with additional uncertainty stemming from Iranian reporting on the terms of the Iran-Oman deal, which has pointed to conditions seen as unfavourable to the US and its regional allies. Any sustained disruption to Gulf shipping would directly affect flows through the Strait of Hormuz, through which roughly a fifth of global oil consumption transits daily.

Separately, President Trump stated he still does not know when the war will end, saying: "I think will end pretty soon."

Federal Reserve: Musalem Reinforces Hawkish Stance

St. Louis Fed President Alberto Musalem used a speech and Q&A in São Paulo to reinforce the hawkish signal he has been sending since last week's FOMC meeting. Musalem said inflation remains well above target with risks tilted higher, and argued that monetary policy must impose meaningful restraint rather than staying easy in pursuit of productivity gains. He warned that doing so would put the Fed's credibility at risk.

Musalem described financial conditions as very accommodative and asset prices as elevated. He added that gradual hikes beat abrupt moves as inflation risk builds, framing any tolerance of above-target inflation as a direct threat to the central bank's inflation-fighting reputation rather than a defensible trade-off. His remarks add to a widening internal Fed debate over whether the full restrictive effect of past tightening has yet to be felt, or whether easy financial conditions are undermining the policy stance.

China: Exports Beat Forecasts as AI and High-Tech Demand Drives Growth

China's trade picture continued to hold up despite fresh US tariffs. July exports beat estimates, and the yuan strengthened in response. Over the first seven months of 2026, China's combined goods trade reached 30.13 trillion yuan, up 17.3% year on year. July exports of high-tech products, including industrial robots and 3D printers, grew by more than 50% from a year earlier, accounting for close to 60% of the month's total export increment. The data reinforces the theme of AI and advanced manufacturing demand carrying China's external trade even as domestic consumption stays soft, with high-tech categories increasingly offsetting weakness in traditional export lines facing tariff headwinds.

The PBOC set the USD/CNY reference rate at 6.7904, versus an estimate at 6.7548, signalling official support for a firmer currency.

Chinese investors poured $1.2 billion into gold ETFs in the longest streak since March.

Looking ahead, China's July inflation data is due Sunday, 9 August at 0130 GMT (Saturday, 8 August at 9:30pm US Eastern time), and will be closely watched for further confirmation of whether external demand strength is translating into any pickup in domestic price pressure.

Asian Equities: Middle East Headlines Hit Korean Shares, AI Names Weigh on Nikkei

Regional equities reflected mixed cross-currents. Japan's Nikkei fell around 1% as AI and chip-related losses outweighed broader gains. SoftBank Group was down around 4% despite beating first-quarter profit expectations, while the Topix was roughly flat.

In Korea, the KOSPI opened more than 1% higher and briefly touched the 6,400 level before reversing entirely within the hour as the Hormuz and Saudi attack headlines hit sentiment. SK Hynix was dragged down around 5%, and the KOSDAQ fell to a loss of close to 3%. Korea and Japan are both major energy importers, making their equity markets particularly sensitive to potential Gulf supply disruptions.

Asian stocks slid as Middle East jitters hit Korea, with AI names weighing on the Nikkei.

Japan: Household Spending Falls, BOJ Rate Path Clouded

Japan's household spending fell for the seventh consecutive month, clouding the Bank of Japan's rate path. Japan June 2026 household spending came in at -6.4% month on month, versus an expected -3.1% and a prior reading of +3.7%. The seventh straight monthly decline complicates the case for further BOJ rate normalisation, as persistent weakness in domestic consumption undercuts the argument that wage-driven inflation is taking hold.

Japan weighed more flexibility for the Government Pension Investment Fund (GPIF) as the pension giant reported Q1 gains.

A Tokyo benchmark is set for a record overhaul, with more than 600 names facing removal.

Yen intervention data showed the scale of Japan's fight against 40-year lows. The ECB was kept out of the loop on the historic US-Japan yen intervention, the Financial Times reported.

Other Central Bank and Currency News

The Reserve Bank of India sold USD/INR to support the rupee, with traders citing intervention.

Analysts see the Reserve Bank of Australia's cash rate on hold at 4.35% at Tuesday's meeting.

In FX markets, the US dollar moved higher with yields ahead of the US jobs report.

US Markets and Upcoming Data

US stocks closed lower as earnings pressure weighed, with the Dow leading the decline.

July non-farm payrolls data is forthcoming, with a preview highlighting key numbers to watch.

Crypto

The US Senate pushed the CLARITY Act crypto vote to September as the congressional recess nears.