Stocks and Bonds Charge Higher as Oil Slides: Markets Wrap
(Bloomberg) — Stocks pushed higher as optimism mounted that the war in the Middle East is nearing a conclusion, pulling Brent briefly below $100 a barrel and lifting bonds. The dollar posted its biggest drop in a week.
The S&P 500 is poised to add 0.4% to its biggest daily advance since May, aided by President Donald Trump saying he foresaw the US ending the war with Iran within two to three weeks. European stocks jumped 2%, alongside a 4.9% surge in Asian shares.
Brent fell as much as 5.4% before paring the decline, even as the Strait of Hormuz remained largely closed and missile and drone attacks continued across the Gulf. European bonds led global gains as traders pared bets on tighter monetary policy, with two-year UK gilt yields falling 11 basis points to 4.29%. Comparable Treasury yields dropped three basis points to 3.76%.
Even if the war ends within Trump’s timeframe and oil flows resume through the Strait of Hormuz, it would take time for volumes to return to normal, especially with some energy facilities damaged during the conflict. Trump’s team has also recently suggested that reopening the waterway, which carries about 20% of global crude, may not be necessary to end the war.
“The correlation between Brent oil prices and global equity markets has been exceptionally strong since the conflict started,” said Wolf von Rotberg, equity strategist at Bank J Safra Sarasin. “This goes to show that a return to previous equity market highs would need the Strait of Hormuz to reopen and oil prices to drop significantly. It is probably too early for an all-clear yet.”
Trump, who will give an address at 9 p.m. Eastern Time Wednesday to provide an “important update” on Iran, said the Islamic Republic could still reach a deal with the US. He added, however, that an agreement with Tehran isn’t a prerequisite for the war to conclude.
“We are seeing a relief rally, and with more information we may see a reversal, so we just need to be careful here,” Remi Olu-Pitan, multi-asset growth and income head at Schroders, told Bloomberg TV. “There’s still a lot of volatility, the market is still fragile.”
Chipmakers extended their rebound in premarket trading, with names such as Sandisk Corp. and Micron Technology Inc. rising more than 2%. Nike Inc. plunged 9% after a gloomy outlook. Miners including AngloGold Ashanti Plc and Newmont Corp. climbed as gold advanced for a fourth straight day, topping $4,700 an ounce.
What Bloomberg strategists say…
“The sea of green in stocks is a classic sign of markets starved for good news latching onto a sliver of hope, but traders need to look at crude prices — not headlines — as a true barometer of what the global economy is up against.”
— Ven Ram, macro strategist. For the full analysis, click here.
Trump called on other nations to take control of the Strait of Hormuz, expressing his frustration that the monthlong war is unresolved and the latest sign he is looking to exit the conflict as oil and gas prices surge. The Wall Street Journal reported that the United Arab Emirates is preparing to help the US and other allies open the strait by force.
“I would expect further volatility in the days to come and the market to oscillate between losses and gains for a few more sessions until we get clarity on how the crisis unfolds,” said Alexandre Baradez, chief market analyst at IG Markets. “This is likely more a temporary respite than a final game changer.”
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 2% as of 10:09 a.m. London time S&P 500 futures rose 0.4% Nasdaq 100 futures rose 0.6% Futures on the Dow Jones Industrial Average rose 0.5% The MSCI Asia Pacific Index rose 4.9% The MSCI Emerging Markets Index rose 4.4% Currencies
The Bloomberg Dollar Spot Index fell 0.3% The euro rose 0.4% to $1.1596 The Japanese yen rose 0.1% to 158.55 per dollar The offshore yuan rose 0.2% to 6.8767 per dollar The British pound rose 0.5% to $1.3290 Cryptocurrencies
Bitcoin rose 0.4% to $68,474.12 Ether rose 1.2% to $2,131.55 Bonds
The yield on 10-year Treasuries declined four basis points to 4.28% Germany’s 10-year yield declined five basis points to 2.95% Britain’s 10-year yield declined 10 basis points to 4.82% Commodities
Brent crude fell 1.2% to $102.74 a barrel Spot gold rose 1.2% to $4,723.02 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Julien Ponthus.
(A previous version of the wrap corrected the oil price.)
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