Oil markets are signaling that the US and Israel's conflict with Iran may be winding down, with Brent crude falling to $73.22 a barrel on Wednesday — a 40 per cent decline from its April 30 peak that effectively erases the war-driven spike. This dramatic reversal caught energy bears off guard and suggests investors are unwinding their tail-risk positions.

Meanwhile, bond markets are pricing in a more optimistic scenario. The US 10-year Treasury yield dropped 9 basis points to 4.4 per cent, even after Federal Reserve Chair Kevin Warsh delivered unexpectedly hawkish remarks last week. Goldman Sachs' Jan Hatzius warned that reduced Fed transparency could increase financial volatility, yet markets appear confident the central bank can maintain its independence from political pressure.

UK gilts emerged as the unexpected beneficiary of this risk repricing, with 10-year yields sliding 16 basis points following Prime Minister Keir Starmer's resignation and Andy Burnham's ascension. Despite concerns about Burnham's policy direction, the market's muted response — evidenced by the new consolidated tape showing minimal trading volume around the leadership change — suggests investors view this transition favorably.

Micron's earnings beat and subsequent after-hours rally provided a brief respite for semiconductor stocks, though the Philadelphia chip index finished nearly flat. Markets seem to be betting that easing geopolitical tensions and declining energy prices will outweigh concerns about Fed communication strategies and UK political uncertainty.