Fresh setback for US-Iran talks after Hezbollah rejects Lebanon ceasefireOil nevertheless pares some weekly gainsBut AI stocks succumb to profit taking, crypto rout deepensDollar slips ahead of jobs report as Fed rate hike bets ease slightlyLebanon Ceasefire Hangs in BalanceJust a day after markets cheered the ceasefire agreement between Israel and Lebanon – seen as crucial for Iran to accept any deal with the United States – Hezbollah has rejected the terms, throwing the ceasefire into doubt.Iran-backed Hezbollah is claiming it was not part of the US-brokered negotiations between the Lebanese and Israeli governments and is demanding that any ceasefire must include the full withdrawal of Israeli troops from southern Lebanon. In the meantime, Israel continues to strike targets in Lebanon, while there have been further drone attacks in the Gulf, with the latest being on Oman’s Mina al Fahal oil terminal.The latest developments have cast doubt on President Trump’s optimism that a deal with Iran is still possible by this weekend.No Panic in Oil MarketsYet, despite the setback, markets have remained largely calm and there is no panic about an imminent escalation in fighting in the Middle East. Investors are increasingly of the view that Trump is not interested in a return to a full-scale war with Iran and seem to be less fearful of the prospect of very protracted negotiations to resolve the conflict.In oil markets, WTI and Brent crude futures have been drifting lower since yesterday, paring some of the gains from earlier in the week. The focus among traders appears to be on the relief that diplomatic efforts are ongoing and there hasn’t been a major flare up rather than the disappointment about the lack of any US-Iran deal.Still, WTI is headed for hefty gains of 6% this week while Brent is on track for a 3% advance.Fresh Doubts About US Jobs MarketThe US dollar has been mirroring oil’s moves in recent days, gaining sharply in the first half of the week before pulling back somewhat. Whilst geopolitics remains in the front seat, Fed policy expectations have also been an important driver. After a string of upbeat economic indicators, yesterday’s releases out of the US were on the soft side.Both the weekly jobless claims and Challenger Layoffs for May ticked higher, pointing to some renewed weakness in the labour market. Moreover, San Francisco Fed President Mary Daly appeared to keep the option of a rate cut on the table, saying the Fed has to be prepared to respond “either way” on the economy.In contrast, Kansas City Fed chief Jeffrey Schmid struck a more hawkish tone, suggesting that the next move in rates would have to be up. Nevertheless, rate hike expectations for December fell back slightly to about 15 basis points, with Treasury yields also declining and weighing on the greenback.Yen Braces for the May NFP ReportSuspected intervention by Japanese authorities, which is possibly capping the greenback’s upside against the yen, may additionally be inducing some dollar weakness.After steadily crawling back up towards 160 yen on Wednesday, there have been several small spikes lower, pointing to some intervention activity, although more hawkish rhetoric from the Bank of Japan and fresh verbal intervention may have helped too in stabilizing the yen.Combined with stronger-than-expected wage growth figures out of Japan today, a June rate increase seems almost certain. Yet, a lack of BoJ conviction is keeping rate hike odds around 80% and the yen vulnerable to persistent selling pressure.The next test for the yen will be today’s US nonfarm payrolls report for May. Although a downside surprise is more likely than an upside one, a hot report could force Japanese authorities back into the market if they haven’t already been intervening this week.AI Stocks Take a Tumble, Cryptos CrashOn Wall Street, however, there is some caution ahead of the latest jobs readings, with the negative Iran headlines dampening sentiment somewhat. Primarily, though, the strong two-week rally in AI-related stocks was due for a mini-correction.The Nasdaq closed lower for a second day on Thursday, but a rotation away from AI and into more traditional stocks pushed the S&P 500 and Dow Jones higher. Shares in Europe have stuck to their sideways range but Korean and Japanese indices are extending their declines today, led by chip stocks, following Broadcom’s uninspiring earnings guidance on Wednesday.Cryptos have also fallen prey to the market selloff. Bitcoin and Ethereum are down 12% and 13%, respectively, this week, extending the slump triggered by news that Michael Saylor’s Strategy (NASDAQ:MSTR) made a rare sale of its Bitcoin holdings, fuelling fears of a deepening bear market.