Even if Nikkei plunges, it rebounds... Should we really be cautious about the NY open? The Middle East situation and the path of crude oil prices

The market at the start of the week, reacting to the Iran situation, moved roughly as three things—Nikkei, crude oil, and Middle East developments—simultaneously.

The Nikkei Stock Average briefly plunged by more than 4,000 yen in the morning, but later it recovered somewhat, and it does not feel like a full-blown panic market. Crude oil also surged past $100 for WTI, but its price movement was very volatile, moving up and down in a short period.

In Asian trading on Monday, the initial reaction tends to be more pronounced, so this movement alone does not determine the market direction.

?What to watch for: the NY open

Movements in crude oil, additional military news, and Trump remarks. How these three things react in the NY market will likely determine the next trend.In the Middle East, following the death of Iran's Supreme Leader Ayatollah Khamenei and the appointment of hard-liner Mojtaba as his successor, expectations for an early resolution have faded. President Trump continues to make rather strong statements, and news items can swing the market quickly.

What truly requires caution is the upcoming NY open.U.S. stock futures show strong downside pressure for the Dow, S&P, and Nasdaq, and crude oil remains around $100. However, in such situations it is not uncommon for gloom to be fully priced in, followed by a rebound. Even after a sharp drop during Asian hours, there have been many cases where the market recovers in NY.

?Is this drop a “collapse” or a “correction”?

Prices have fallen from the high range (58–59 thousand yen) to just below 52 thousand yen. However,compared with the year-end level of 50,000 yen, this can be seen as a correction rather than an excessively steep drop.In recent months, Japanese stocks have been highly overheated, driven by policy expectations and inflows into theme stocks.

Thus, this geopolitical shock may have cooled the overheated market once. Additionally, the yen has been on a weakening trend, providing some tailwinds for exporter stocks. Overall indices may continue to experience volatile moves, butthere is not enough material to declare a structurally bearish market yet.

?Ultimately, the key is the NY market’s reaction

To sum up, the real focus at the start of the week is the reaction of the NY market. Will crude oil rise further or settle down?Will there be additional military news, or will tensions ease slightly? A single Trump remark can swing the market.

In markets with high uncertainty, commentary with strong language tends to increase. Still, in such times the only option is to sort through the data piece by piece. Rather than being swayed by hype, it is important to calmly monitor movements in crude oil, Middle East tensions, and the NY market.

That is indeed a difficult-to-read situation, but for now we should calmly observe the NY open.