War news dominated, read from the bottom up for chronology:

• Iran strikes US bases in Jordan, Kuwait and Bahrain as retaliation widens across region
• Iran attacks US Fifth Fleet in Bahrain after American strikes target Hormuz defense
• CENTCOM declares Iran strikes complete after three waves targeting Hormuz defenses
• Oil has risen as the US has launched wave after wave after wave of attacks on Iran
• US launches third wave of Iran strikes as ballistic missiles fired from Isfahan
• Second wave of US attacks on Iran said to be underway
• Iran foreign minister Araqchi warns US to leave region, pledges response to strikes
• US hits Iran air defenses in warning shot as Trump says deal talks to continue
• More on this news: US strikes southern Iran after Apache helicopter downed over Hormuz
• Reports of multiple explosions near Bandar Abbas, on coast of Strait of Hormuz

Other:

• China May CPI 1.2% y/y (expected 1.3%) and -0.1% m/m (expected -0.2%)
• PBOC sets USD/ CNY central rate at 6.8130 (vs. estimate at 6.7749)
• Japan data: May PPI 6.3% y/y (expected 5.5%) and 0.9% m/m (expected 0.5%)
• Oil: Private inventory survey shows a headline crude oil draw much greater than expected
• US stocks close mixed in a very volatile trading session

Summary:

• US and Iran exchange direct military strikes overnight in the most serious escalation since the conflict began in February
• Iran downed a US Army Apache helicopter over the Strait of Hormuz; Washington responded with three waves of precision strikes on Iranian air defense, radar and ground control sites
• Tehran struck back across three fronts, targeting US bases in Bahrain, Kuwait and Jordan with missiles and drones; IRGC claims 21 targets hit including F-35 hangars at Al-Azraq
• Iran warns of a crushing and decisive response to any further US action; Washington insists peace talks remain on track
• Oil rose around 1% in Asian trade but the move was modest and has not extended; markets appear to be in a wait-and-see posture
• US crude inventories fell for an eighth straight week, down 9.12 million barrels per API survey data; official EIA figures due Wednesday
• Japan’s wholesale inflation hit its highest since March 2023 in May; yen-based import prices up 25.5% year-on-year, fastest since November 2022
• China’s factory-gate prices rose to a near four-year high in May while consumer inflation stalled, pointing to margin compression across the industrial sector
• Regional equities retreated on geopolitical risk; USD rangebound against major currencies

What began as a localised incident over the Strait of Hormuz has, within the space of a single night, become the most significant direct military exchange between the United States and Iran since the conflict began in February.

The sequence matters. A US Army Apache helicopter was downed by an Iranian drone the previous day. Washington responded today with three waves of precision strikes targeting the air defense and radar architecture that underpins Iran’s control of Hormuz. Tehran then went well beyond a symmetric response, launching missiles and drones simultaneously against US military bases in Bahrain, Kuwait and Jordan, claiming 21 targets hit including F-35 hangars and command infrastructure at Al-Azraq.

The geography of Iran’s retaliation is the defining development. This is no longer a Hormuz story. Iran has demonstrated both the willingness and the reach to strike US air power assets across the broader Middle East, and has explicitly warned that anything further from Washington will draw a crushing and decisive response.

Against that backdrop, the US official line that tonight’s strikes were a warning shot designed not to derail peace negotiations looks very difficult to sustain. Trump says a deal is still close. Iran’s Foreign Minister and the IRGC are saying something entirely different. Hormuz remains closed. Oil is up. The morning will be telling.

Oil’s initial reaction was a modest rise of around 1% in early Asian trade, a number that looks strikingly small given the scale of what unfolded. That move has not been sustained or extended, suggesting markets are either waiting for damage assessments and official confirmation before committing, or are pricing in the possibility that diplomatic back-channels remain open despite the rhetoric. Either way, the muted price response feels like a pause rather than a verdict.

Beneath the geopolitical noise, the fundamental picture in crude was already tightening before the first strike was launched. US crude inventories fell for an eighth consecutive week according to the latest API survey data, with stocks down 9.12 million barrels in the week ended June 5. Gasoline stocks also declined. Eight straight weeks of draws is not a rounding error,- it is a trend, and it points to a US supply picture that was tightening independently of anything happening in the Strait of Hormuz.

The official EIA numbers are due Wednesday morning US time. If they confirm the API read, the market will be sitting on a major geopolitical escalation and a sustained domestic inventory drawdown simultaneously. That combination may yet produce the price move that tonight’s military exchanges alone did not.

The data backdrop reinforced the inflationary pressure building across the region. Japan’s wholesale inflation posted its largest year-on-year increase since March 2023 in May, while the Bank of Japan noted that yen-based import prices surged 25.5% annually, the fastest pace since November 2022. The numbers reflect how thoroughly the Middle East conflict and Hormuz disruption have fed through into import costs for an economy as exposed to energy imports as Japan’s.

In China, the picture was split. Consumer inflation stalled unexpectedly in May even as factory-gate prices climbed to their highest in nearly four years, rising for a third consecutive month and exceeding market forecasts. The divergence between accelerating producer costs and subdued household prices is a classic margin compression signal, but the broader message is the same as Japan’s, global commodity and energy costs are piling pressure onto manufacturers and filtering through to cost of living across the region.

Beyond oil, regional equity markets gave ground as the scale of the overnight US-Iran exchange registered on sentiment. The risk-off tone was measured rather than panicked, with the USD remaining rangebound against major currencies, suggesting markets are still in a wait-and-see posture rather than moving to price a full regional war scenario. That posture may not survive Wednesday’s session intact.

This article was written by Eamonn Sheridan at investinglive.com.