Saudi Attack Warning Lifts Oil, Pressures Risk Assets

The Gulf security picture darkened sharply Friday as a senior Saudi official told CNN and Reuters the kingdom expects multiple coordinated attacks imminently. The official said Iran's Revolutionary Guard Corps, Yemen's Houthis and Iraqi militias are converging from the north, south and east. Targets include civilian, energy and oil facilities, economic sites, critical infrastructure, airports and ports, with drones and missiles already observed in motion, consistent with preparations for a three-pronged operation, the official said.

Oil prices ticked higher on the news. The Houthi-Saudi tensions also drew additional uncertainty from Iranian reporting on the terms of the Iran-Oman deal, which pointed to conditions seen as unfavourable to the US and its regional allies. 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 deal brings Pakistan, the Muslim world's only nuclear power, into a formal defence arrangement with Riyadh at a moment of acute regional risk.

On monetary policy, St. Louis Fed President Alberto Musalem used a speech in São Paulo to reinforce the hawkish signal he has sent since last week's FOMC meeting. Musalem said inflation remains well above target with risks tilted higher. He argued monetary policy must impose meaningful restraint rather than staying easy in pursuit of productivity gains, warning that doing so would put the Fed's credibility at risk. The remarks add to a run of increasingly hawkish commentary from Musalem this week, framing any tolerance of above-target inflation as a direct threat to the central bank's inflation-fighting reputation.

The Reserve Bank of India sold USD/INR to support the rupee, traders said. That move came as the broader dollar held steady against major peers, with the Gulf security overhang capping risk appetite.

China's trade picture continued to hold up. 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.

Regional equities reflected the mixed cross-currents. Japan's Nikkei fell around 1% as AI and chip-related losses outweighed broader gains. SoftBank Group dropped around 4% despite beating first-quarter profit expectations. 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 fell around 5%, pulling the KOSDAQ to a loss of close to 3%.

China's July inflation data is due Sunday, 9 August at 0130 GMT, which is Saturday, 8 August at 9:30 pm US Eastern time. The print will be watched for further confirmation of whether external demand strength is translating into any pickup in domestic price pressure. For more on the macro backdrop, see our forex market analysis.