Stocks near record high as crude oil drops on Iran: Markets wrap

Global stocks climbed to approach a record high as crude oil fell after officials signaled the US was nearing a deal with Iran to reopen the Strait of Hormuz and restore oil flows. The dollar weakened.

The MSCI All Country World Index, the broadest measure of global equities, rose 0.3% to trade near an all-time high reached earlier this month. A gauge of Asian shares gained 1.4%. Japan’s Nikkei index jumped over 3% to a record, with tech stocks rallying. Futures contracts for the S&P 500 rose 0.9% to a record.

The moves came as Brent dropped over 5% to $97.70 a barrel, the lowest in more than two weeks, amid optimism a deal will help resume the flow of oil through the vital Middle East artery.

Cheaper oil prices and lower inflation expectations helped lift Treasury futures, with cash trading closed Monday due to a US holiday. Government bond yields in Japan and Australia also fell. Markets in Hong Kong and London are also shut. The dollar weakened against all of its Group-of-10 peers. Non-interest-bearing assets such as gold and silver climbed as lower inflation lifts chances for interest-rate cuts.

Senior US officials said Sunday that the US and Iran were nearing a deal that would reopen the Strait of Hormuz, though negotiations over key language were continuing and final approval from both sides could still take several days. However, Iran’s Tasnim news agency cautioned that the draft agreement could yet collapse because the US is obstructing some key clauses, including Tehran’s demand that its assets be unfrozen.

The improvement in risk sentiment follows weeks of stalemate between the US and Iran after several previous efforts to strike a deal. Global equities have since surged to record highs on optimism that Middle East tensions may ease and on renewed enthusiasm for the AI trade, while elevated oil prices and higher inflation pushed bond yields to multi-year highs.

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“The market has been in that mode of looking beyond Iran war for a month or so,” Allspring Portfolio Manager Alison Shimada said on Bloomberg TV. “I am interested in positioning for what goes on beyond the lower price of oil, because I think both sides do want some kind of negotiated end to the war.”

While the US and Iran closed in on a deal, President Donald Trump said he won’t “rush” into an agreement. The deal is still a work in progress and the US is going to give diplomacy every chance to succeed, Secretary of State Marco Rubio said.

“We thought we might have some news last night. Maybe today, I wouldn’t read too much into it,” he said regarding the lack of news, noting that it takes time to hear back.

What Bloomberg’s Strategists Say…

“The unprecedented pace of the drawdown in US crude oil inventories highlights the importance for global markets that the weekend’s efforts to reach a deal between Washington and Tehran bear fruit.”

— Garfield Reynolds, Markets Live team leader. For more on the analysis, click here.

The US and Iran have developed a memorandum of understanding framework that extends the ceasefire 60 days as the two sides reach a final deal to permanently end the war, the Washington Post reported. In the mean time, the Strait of Hormuz will be de-mined and reopened, the report said.

“I think markets are cautiously optimistic on updates on the Middle East, hence a bit of risk-on,” said Nick Twidale, chief market analyst at AT Global Markets. “Trump has already jumped from ‘deal imminent’ to ‘I’m in no rush’ this weekend. So I think it’s 50/50 again on this deal, although obviously a positive that they are negotiating.”

Traders remain focused on inflation. They have fully priced in a Federal Reserve rate hike by year-end, underscoring expectations that the US central bank chair Kevin Warsh will need to act swiftly. Later this week, US Personal Consumption Expenditures data and inflation readings across Europe will offer clues on price pressures and the direction of interest rates.

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Warsh, who has promised the biggest shakeup in decades at the US central bank, was sworn into office Friday. Trump stressed that he wants Warsh to independently lead the Fed, as he looked to downplay investor concern that he would pressure the new central bank chief on policy decisions.

Elsewhere, China launched an unprecedented campaign against illegal cross-border trading to stem capital outflows, threatening severe penalties against popular brokers and ordering non-compliant accounts to be liquidated within two years.

Meanwhile, Monday’s drop in oil came as signs emerged that ships are beginning to transit the Strait. Thirty-three vessels, including oil tankers, container ships and other commercial craft, the Strait of Hormuz over 24 hours after obtaining authorization from the Islamic Revolutionary Guard Corps Navy.

“While any reopening of Hormuz would be positive for global oil flows, the fluid nature of the negotiations and the unresolved differences suggest oil price volatility could persist for some time yet,” ANZ Bank strategists including David Croy wrote in a note to clients.

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.9% as of 1:55 p.m. Tokyo time
Japan’s Topix rose 1.2%
Australia’s S&P/ASX 200 rose 0.5%
The Shanghai Composite rose 0.6%
Euro Stoxx 50 futures rose 1.1%

Currencies

The Bloomberg Dollar Spot Index fell 0.3%
The euro rose 0.3% to $1.1643
The Japanese yen rose 0.2% to 158.86 per dollar
The offshore yuan rose 0.3% to 6.7809 per dollar

Cryptocurrencies

Bitcoin rose 0.9% to $77 286.1
Ether rose 0.6% to $2 102.86

Bonds

Japan’s 10-year yield declined six basis points to 2.700%
Australia’s 10-year yield declined five basis points to 4.88%

Commodities

West Texas Intermediate crude fell 5.9% to $90.89 a barrel
Spot gold rose 1.2% to $4 564.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

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