(April 8): Oil slid the most in almost six years and stocks surged after the US and Iran agreed to a two-week ceasefire, giving markets a respite from the turbulence driven by the Middle East conflict.
West Texas Intermediate tumbled as much as 19% after US President Donald Trump agreed to suspend bombing on Iran in a move that will help resume oil flows through the Strait of Hormuz. Iran said safe passage through the waterway will be possible during that period. Global benchmark Brent slid as much as 16%.
MSCI’s Asian stock benchmark jumped 2.6% and equity-index futures for Wall Street gauges rose more than 2% as traders bet that lower oil prices will help contain inflation and revive economic growth. European stock futures surged 5%. A gauge of the dollar, which emerged as the haven of choice during the conflict, fell 0.6%, while Treasuries rallied as traders added to bets on Federal Reserve interest-rate cuts.
The ceasefire proposal is reviving risk sentiment after turmoil that drove stocks lower and pushed several gauges into correction territory since the war started six weeks ago. The announcements — just hours before a Trump threat to escalating bombing on Iran — eases fears of supply disruptions in oil markets, tempering inflation concerns and reducing pressure on central banks to keep policy tighter for longer.
“For the time being, this is a relief for markets — things have calmed down,” said Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management in Tokyo. “But things are not guaranteed to go smoothly from here, and investors shouldn’t get ahead of themselves.”
Trump announced the agreement Tuesday on social media hours after Pakistan, a mediator in talks, implored the US leader to back off his deadline to unleash massive devastation on Iran if it did not meet his demands. The deal buys time for the two sides to reach a longer agreement to end the war, which has killed thousands of people and sparked a global energy crisis.
See also: In troubled times, remember that investment is a circular game
Trump’s decision represents a dramatic climb-down from a bellicose social media post earlier Tuesday, in which he warned “a whole civilisation will die tonight, never to be brought back again” if Iran didn’t give in.
“It’s a good result considering the alternatives, as it shows a willingness to get something done,” said Matthew Haupt, a fund manager at Wilson Asset Management in Sydney. “This is also showing promising signs that we’ve dodged the worst-case scenario.”
Safe passage through the Strait of Hormuz will be possible via coordination with Iran’s armed forces and with “due consideration of technical limitations”, Iranian Foreign Minister Abbas Araghchi said in a post on X.
See also: Oil trims gain, Asia stocks rise before Iran talks
In other corners of the market, gold jumped as much as 3.1% to above US$4,850 an ounce as bullion — a non-yielding asset — typically benefits in a lower interest rates scenario.
The Treasury yield curve bull-steepened as a slump in oil prices fuelled bets that slower inflation will pave the way for the Fed to cut rates. Policy-sensitive two-year yields dropped seven basis points to 3.72%, while the 10-year counterparts fell four basis points to 4.25%.
Overnight-indexed swaps signalled a 60% likelihood of a Fed rate cut by the year-end, compared with almost no chance seen at the start of this week. They had priced in more than two rate reductions before the US and Israel attacked Iran in late February.
“There’s room for more bull steepening” in the near term, said Ken Crompton, head of rates strategy at National Australia Bank Ltd. “The market could readjust toward a slightly greater chance of FOMC cuts than currently priced.”
After Trump’s initial post, it was unclear if a path toward deescalation would be found. US forces in the early hours of Tuesday hit military targets on Iran’s major oil export hub of Kharg Island.
The complete terms of a possible pact weren’t disclosed. Trump only said the US had received a 10-point proposal from Iran, describing it as “a workable basis on which to negotiate”.
“Be aware that we can still see more volatility on any fresh headline,” said Nick Twidale, chief market analyst at AT Global Markets. “These are big moves in markets which should promote further volatility today.”
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 2.1% as of 9.41am Tokyo time
- Hang Seng futures were unchanged
- Nikkei 225 futures (OSE) rose 4.2%
- Japan’s Topix rose 2.9%
- Australia’s S&P/ASX 200 rose 2.6%
- Euro Stoxx 50 futures fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.6%
- The euro rose 0.6% to US$1.1669
- The Japanese yen rose 0.6% to 158.66 per dollar
- The offshore yuan rose 0.3% to 6.8382 per dollar
Cryptocurrencies
- Bitcoin rose 3.9% to US$71,985.06
- Ether rose 6% to US$2,241.57
Bonds
- The yield on 10-year Treasuries declined four basis points to 4.26%
- Japan’s 10-year yield declined four basis points to 2.365%
- Australia’s 10-year yield declined 10 basis points to 4.89%
Commodities
- West Texas Intermediate crude fell 14% to US$97.46 a barrel
- Spot gold rose 2.3% to US$4,814.60 an ounce
Uploaded by Chng Shear Lane
