(June 15): Stocks and Treasuries rallied on Monday while oil fell to a three-month low after the US and Iran reached a deal to reopen the Strait of Hormuz, easing concerns over energy-supply disruptions that have roiled global markets.
A gauge of Asian shares jumped more than 3% in early trading, while S&P 500 futures were up 1.1%. The dollar declined against major peers and bitcoin climbed to its highest level in nearly two weeks. Brent crude fell more than 4% to under US$84 ($107.67) a barrel.
The peace agreement paves the way for an end to a conflict that has claimed thousands of lives, disrupted the global economy and driven volatility across financial markets since the end of February. A resumption in Middle Eastern oil flows may help unwind the geopolitical premium embedded in crude prices, offering relief to policymakers battling inflation.
“Markets have been waiting for this news for months, and the relief is already showing,” said Josh Gilbert, the lead analyst for Asia-Pacific and the Middle East at eToro Ltd, a multi-asset investment platform operator. “However, this is still a move of optimism, not certainty. The nerves won’t fully settle until the deal is signed, meaning investors should still err on the side of caution.”
The Strait of Hormuz will be “opening” on Friday upon the signing of the deal with Iran, US President Donald Trump said in a post on Truth Social. The deal announcement came first from Pakistani Prime Minister Shehbaz Sharif, and was followed by Trump and Iranian state media. Neither side released the text of the deal but the broad contours had circulated for days.
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A durable peace deal will likely help ease inflation pressures and reinforce expectations for lower interest rates, supporting bonds while also providing a tailwind for equities and commodities.
Yields on 10-year Treasuries slid six basis points to 4.42% on Monday. They may decline towards the 4.20% level as inflation concerns ease after the interim deal to reopen the Strait of Hormuz, according to broker ACCM.
The war altered the trajectory of both the US dollar and Treasury yields. The greenback has strengthened since the conflict began, supported by haven demand, America’s status as a net energy exporter and expectations that higher energy costs may prompt the US Federal Reserve (Fed) to raise interest rates. Treasury yields also climbed as traders priced in the inflationary risks posed by higher oil prices.
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Equity markets, though, have largely shrugged off the turmoil. A gauge of world stocks continued to notch record highs throughout the conflict, most recently on June 2, as relentless enthusiasm for artificial intelligence outweighed geopolitical concerns. It rose as much as 0.6% on Monday.
Elsewhere in markets, gold climbed around 2% while silver jumped about 3%. The Bloomberg Dollar Spot Index dropped 0.2%.
Even as he celebrated the deal, Trump told The New York Times in an interview on Sunday that if an agreement is not reached with Iran on a nuclear deal, he could restart military attacks on Tehran. Both sides were already casting the deal in different lights minutes after it was announced — suggesting how hard it will be to reach agreement on the outstanding issues around Iran’s nuclear programme.
Beyond geopolitics, the next major event risk for markets looms on Wednesday, when the Fed votes on interest rates for the first time under new chair Kevin Warsh. If there is a convincing message that the Fed is willing to shift back into inflation-fighting mode, Wall Street will likely be reassured about Warsh’s commitment to maintaining the bank’s political independence.
“A hawkish Fed hold should support the dollar, but Warsh risks spoiling the dollar bull party,” Elias Haddad, the global head of markets strategy at Brown Brothers Harriman, wrote in a note to clients. Markets will focus on whether Warsh “joins the majority in keeping rates on hold or dissents for a cut, becoming the first Fed chair in history to be outvoted on policy”.
Traders are also awaiting a swath of other central bank decisions this week as the energy-price shock from the Middle East war feeds into consumer prices and crimps growth.
In Asia, the Reserve Bank of Australia is expected to keep its policy rate unchanged at the end of its two-day meeting on Tuesday while the Bank of Japan may hike its rate to 1%, a level last seen in 1995. Bank Indonesia could lift rates again, according to a Bloomberg survey, after an out-of-cycle move last week to support its currency.
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“The big question is how quickly this oil relief translates into lower inflation and whether that opens the door for central banks to take an easier stance on monetary policy,” said Tim Waterer, the chief market analyst of KCM Trade.
Stocks
- S&P 500 futures were up 1.1% as of 10.52am Tokyo time on Monday
- Japan’s Topix rose 3.8%
- Australia’s S&P/ASX 200 rose 1.3%
- Hong Kong’s Hang Seng rose 1%
- The Shanghai Composite rose 1.3%
- Euro Stoxx 50 futures rose 1.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to US$1.1600
- The Japanese yen was little changed at 160.17 per dollar
- The offshore yuan was little changed at 6.7581 per dollar
Cryptocurrencies
- Bitcoin rose 2.4% to US$65,503.79
- Ether rose 2.9% to US$1,717.65
Bonds
- The yield on 10-year Treasuries declined six basis points to 4.42%
- Japan’s 10-year yield declined 6.5 basis points to 2.570%
- Australia’s 10-year yield declined four basis points to 4.77%
Commodities
- West Texas Intermediate crude fell 4.8% to US$80.84 a barrel
- Spot gold rose 2.4% to US$4,318.90 an ounce
Uploaded by Tham Yek Lee
