Stocks rebound, oil and dollar slip on hopes of US-Iran resolution
Close up of stock market chart on a glowing particle world map and trading board.
Asian stocks advanced while oil prices and the safe-haven dollar fell on Tuesday as investors banked on a resolution to the Middle East war even as the U.S. blocked Iran’s ports after the collapse of peace talks over the weekend.
U.S. President Donald Trump also said that Iran wants to make a deal, though he will not come to any agreement that allows Tehran to have a nuclear weapon.
Investors latched on to hopes for an off-ramp, lifting the overall market mood and sending MSCI’s broadest index of Asia-Pacific shares outside Japan up nearly 2%, while Japan’s Nikkei rose more than 2%.
Nasdaq futures advanced 0.2% while S&P 500 futures held steady, following an overnight rally on Wall Street, while EUROSTOXX 50 futures gained 0.41% and DAX futures added 0.6%.
“Markets are trading hope, not resolution. The failed weekend talks did not produce a deal, but they also did not close the door on diplomacy, and that is enough for equities to keep pushing higher for now,” said Charu Chanana, Saxo’s chief investment strategist.
“The problem is that markets may be pricing the chance of de-escalation faster than the proof of it, so I would still expect a choppy, headline-driven tape rather than a clean risk-on trend,” she added.
The U.S. military began a blockade of Iran’s ports, angering Tehran and adding uncertainty around the crucial waterway, though shipping data showed a U.S.-sanctioned Chinese tanker passed through the Strait of Hormuz on Tuesday.
Trump has said Washington would block Iranian vessels and any ships that paid such tolls and that any Iranian “fast-attack” ships that went near the blockade would be eliminated.
“The U.S. has actually played that trump card. To me it’s important because they forced the onus back on Iran to open the Strait without the need to put those boots on the ground,” said Tony Sycamore, a market analyst at IG.
“It’s now forced the Iranians back to the drawing board.”
Oil prices slid as expectations for further dialogue to end the war outweighed concerns over supply disruptions, leaving Brent crude futures down 1.5% at $97.90 a barrel. U.S. crude futures fell 2.3% to $96.78 per barrel.
In China, data on Tuesday showed the country’s export engine slowed in March as buyers chasing an artificial-intelligence-fuelled future ran into the hard reality of the war.
Still, the country’s CSI300 blue-chip index tracked the regional rally and was up 0.7%. Hong Kong’s Hang Seng Index rose 0.4%.
DOLLAR ON THE BACK FOOT
The dollar fell to a 1-1/2-month low of 98.298 against a basket of currencies on Tuesday, as buoyant risk sentiment dampened demand for the world’s reserve currency.
That left the euro trading 0.1% higher at $1.1769 while sterling rose to a more than six-week peak of $1.3521.
“The U.S. and Iran have started to walk down the path of coming up to an agreement,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
However, “the markets are still facing a global economic outlook that is deteriorating, and I think the risks are high that you get equity markets and credit markets and the like fall again, and that would push up the U.S. dollar against probably all currencies.”
U.S. Treasury yields were little changed, with the two-year yield last at 3.7678% while the benchmark 10-year yield stood at 4.2775%.
The inflationary pressure from the steep rise in energy prices has prompted investors to prepare for the possibility that a number of major central banks will lean towards raising rates, marking a sharp reversal from expectations prior to the war for rate cuts or a prolonged pause.
Elsewhere, spot gold was up 0.7% at $4,770.31 an ounce.
