(May 26): Stocks trimmed their advance and crude oil climbed after reports of US strikes on sites in Iran damped optimism over a potential deal with Tehran.
US equity-index futures rose 0.6%, though gains were more subdued than Monday’s holiday-thinned advance, when markets in the US were closed. Treasuries rallied across the curve as cash trading resumed after a break. The MSCI Asia Pacific Index climbed 0.5%, led by South Korea as markets reopened after a holiday.
Weighing on risk appetite was a rebound in oil prices after reports of fresh US strikes in Iran clouded the outlook for an interim deal between Tehran and Washington to reopen the Strait of Hormuz. Brent rose 2% to US$98 a barrel, bouncing back from Monday’s slump of more than 7%.
The dollar strengthened against all its Group-of-10 peers, while gold erased earlier gains to fall 0.5% to about US$4,545 an ounce. Hours after Iranian negotiators arrived in Qatar for talks on ending the war, US forces struck missile launch sites in Iran and boats trying to emplace mines, American officials said Monday night, the New York Times reported.
“The market is going to be cautious, given how previous hopes for a deal were dashed,” said Abbas Keshvani, director of Asia macro strategy at RBC Capital Markets in Singapore. “But progress in the talks could lead to a further reduction in energy prices, inflation expectations, and therefore yields.”
Earlier, US President Donald Trump said that negotiations with Iran over an interim deal to extend their ceasefire and reopen the strait were “proceeding nicely”. Pakistan’s military chief, Asim Munir, the main interlocutor between the warring sides, told China an agreement is “close to being reached”.
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Global stocks hit a record Monday as traders bet the worst of the Middle East energy shock may be over after months of conflict disrupted oil supplies, stoked inflation fears and drove bond yields higher. A deal to reopen the Strait of Hormuz and extend the US-Iran ceasefire could further ease pressure in the oil markets and spur the AI-led rally in equities.
US Central Command characterised the strikes in southern Iran as defensive and said they had been intended to protect troops from threats posed by Iranian forces, NYT reported.
“As the US and Iran make progress toward an agreement, the attack is not viewed as an attempt to re-escalate the war, and the overall scenario towards the deal is unlikely to change,” said Yugo Tsuboi, chief strategist at Daiwa Securities.
See also: Stocks extend gains as crude oil drops on Iran
Key sticking points remain unresolved, however, including the future of Iran’s nuclear programme. Iran’s Tasnim news agency reported the draft agreement could still collapse because of US objections to several provisions, including Tehran’s demand that frozen assets be released.
In other geopolitical news, Russian Foreign Minister Sergei Lavrov urged US Secretary of State Marco Rubio to evacuate American citizens and diplomats from Kyiv ahead of what Moscow said would be an escalation of strikes on the Ukrainian capital, according to a statement from Russia’s Foreign Ministry on Monday.
Corporate news:
- Rapid-commerce firm Zepto Ltd is preparing to publicly file in the first half of June for an initial public offering that may raise up to US$1 billion ($1.28 billion), according to people familiar with the matter.
- Ferrari NV unveiled its first fully electric car, a five-seat model priced at €550,000 (US$640,000 or $817,250.50) that marks a sharp break from the sports-car maker’s fuel-burning heritage.
- VinFast Auto Ltd appointed the son of billionaire founder Pham Nhat Vuong as chairman while the Vietnamese electric vehicle maker faces mounting losses and setbacks in the US.
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.6% as of 10.11am Tokyo time
- Japan’s Topix rose 0.2%
- Australia’s S&P/ASX 200 fell 0.6%
- Euro Stoxx 50 futures fell 0.3%
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Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1636
- The Japanese yen was little changed at 158.99 per dollar
- The offshore yuan was little changed at 6.7852 per dollar
Cryptocurrencies
- Bitcoin fell 0.7% to US$76,652.92
- Ether fell 0.6% to US$2,093.62
Bonds
- The yield on 10-year Treasuries declined six basis points to 4.50%
- Japan’s 10-year yield advanced one basis point to 2.700%
- Australia’s 10-year yield advanced one basis point to 4.89%
Commodities
- West Texas Intermediate crude fell 5% to US$91.78 a barrel
- Spot gold fell 0.5% to US$4,547.96 an ounce
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