(March 30): Stocks rebounded while Treasuries rose on Monday as worries that the Iranian war will trigger an economic slowdown prompted traders to dial back bets on higher interest rates. Brent climbed towards US$115 ($148.31) a barrel.
S&P 500 futures rose 0.8% after the benchmark slumped to an August low at the end of last week. US President Donald Trump said the US is in talks with “a new, and more reasonable, regime” in Iran and that negotiations have yielded progress. Still, he warned that the military would target Iran’s energy infrastructure if the Strait of Hormuz waterway remains closed.
Treasury yields fell across the curve after money markets cut the odds of a US Federal Reserve (Fed) rate hike in 2026 to less than 20%, from around 35% last Friday. The rate on two-year Treasuries dropped six basis points to 3.86%. The dollar rose.
While traders have so far largely focused on the inflationary shock from rising oil prices, sending the Treasury market towards its deepest monthly loss since October 2024, some of Wall Street’s biggest bond-fund managers said yields will slide as the war’s impact on growth becomes more apparent.
“While inflation remains a concern, the potential drag on growth and confidence should start to act as an offset, limiting further upside in yields,” said Francisco Simón, the European head of strategy at Santander Asset Management. “Together with oil, we think the bond market is currently one of the clearest expressions of how markets are pricing the impact of the conflict on the macro outlook.”
See also: US stock rebound fades as bond yields, oil climb
Fed chair Jerome Powell will participate later on Monday in a moderated discussion at Harvard University, where he may offer clues on how he sees the war affecting the balance of risks to inflation and employment.
In Europe, the Stoxx 600 advanced 0.7% as bond markets strengthened, although the slide in yields was less pronounced than in the US. Money markets now see the probability of a European Central Bank rate hike next month at about 55%. It was fully priced a week ago.
“The slight recovery in the bond markets is only temporary,” said Guillermo Hernandez Sampere, the head of trading at asset manager MPPM. “The impact on inflation is not yet fully priced in, and potential interest rate hikes would negatively affect the already gloomy economic outlook.”
See also: As the war drags on, is it time for investors here to ‘dig in’?
The yen rose against all its Group-of-10 peers after Japan’s currency chief Atsushi Mimura said the nation may take bold action in the foreign exchange market. Aluminium advanced 3.2% after Iran’s weekend strikes on Middle Eastern smelters. Gold held its first weekly gain since the war began.
Hedge funds have cut their global equity holdings for a sixth straight week, driven by short sales, according to traders at Goldman Sachs Group Inc. The shorting and selling by systematic investors have raised the potential for a sharp rebound if the war de-escalates.
“Some signs of capitulation are starting to emerge,” the team said in a note on hedge funds’ US exposure, suggesting the funds were close to their maximum levels of pessimism.
Strategists at Morgan Stanley said the S&P 500 correction is nearing its final stage, even though potential rate hikes may still pose a threat.
Oil may hit a record US$200 a barrel if the Iran war drags on until June, with the Strait of Hormuz remaining shut, Macquarie Group Ltd warned. A conflict that stretches through the second quarter would result in historically high real prices, analysts including Vikas Dwivedi said in a note, outlining a scenario with odds of 40%.
An alternative outlook, with a probability of 60%, suggested the war may finish at the end of this month, they said.
Corporate news:
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- Air Canada chief executive officer Michael Rousseau announced he’s leaving after creating a public relations fiasco with an English-only video statement about the deadly runway collision at LaGuardia Airport in New York.
- Sysco Corp, a large US food distributor, agreed to buy privately held Jetro Restaurant Depot LLC for US$29.1 billion including debt.
- BFF Bank SpA’s stock slumped as much as 61%, the most on record, after it disclosed that a review identified more issues in how it classifies loans as performing.
- BYD Co signalled to analysts that exports this year will probably beat its previous target by 15%, according to people familiar with the matter.
Some of the main moves in markets:
Stocks
- S&P 500 futures were up 0.8% as of 8.28am New York time on Monday
- Nasdaq 100 futures rose 0.7%
- Futures on the Dow Jones Industrial Average rose 0.7%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World Index fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.2% to US$1.1483
- The British pound fell 0.2% to US$1.3231
- The Japanese yen rose 0.5% to 159.49 per dollar
Cryptocurrencies
- Bitcoin rose 1.9% to US$67,813.18
- Ether rose 3.4% to US$2,069.75
Bonds
- The yield on 10-year Treasuries declined six basis points to 4.37%
- Germany’s 10-year yield declined four basis points to 3.06%
- Britain’s 10-year yield declined four basis points to 4.93%
Commodities
- West Texas Intermediate crude rose 1.4% to US$101.07 a barrel
- Spot gold rose 1.6% to US$4,567.05 an ounce
Uploaded by Tham Yek Lee
