Stocks, Bonds Erase Losses on Hormuz Optimism: Markets Wrap

(Bloomberg) — Stocks and bonds swung from losses to gains while oil prices slipped on optimism that the US and Iran were inching toward a deal to reopen the Strait of Hormuz.

S&P 500 futures rose 0.2% after falling as much as 0.8% earlier in the session. Brent fell 1.3% below $108 a barrel, with Iran’s semi-official news agency reporting that the US proposed a temporary waiver on Iran oil sanctions. The measure is a key demand by Tehran to reopen the Strait of Hormuz.

Treasuries fluctuated, with the 10-year yield down three basis points at 4.57%. Earlier in the day, Japan’s 30-year yield surged as much as 20 basis points before paring most of the move. The dollar was set to snap a five-day run of wins.

The standoff in the Middle East has punctured an artificial intelligence-driven rally that has pushed global stocks to record highs. Meanwhile, bond yields have climbed to levels seen decades ago on fears that central banks will lift interest rates and governments will ramp up borrowing to cushion the blow from rising energy prices.

As a fragile ceasefire between the US and Iran extends past 40 days and a deal to reopen the Strait of Hormuz remains elusive, President Donald Trump expressed frustration with Tehran and warned the “clock is ticking.” Earlier, drones targeted a nuclear power plant in the United Arab Emirates.

“Bonds were more nervous about the inflation picture and the equity market was comforted and encouraged by the very strong earnings and AI-led optimism,” said Willem Sels, global chief investment officer at HSBC Private Bank. “What you now have is a bit of a catch-up movement in the equity market, a bit of an exhaustion of the momentum.”

UK gilts steadied after last week’s sharp selloff as investors weighed a potential leadership challenge by Manchester Mayor Andy Burnham. The 10-year rate was down seven basis point to 5.10%, while the pound headed for its first daily gain in more than a week.

At a time when markets expect the Federal Reserve under Kevin Warsh to hike rates as soon as December, minutes from last month’s meeting due Wednesday will give investors clues about policymakers’ thinking.

“We suspect that it is becoming increasingly clear that disruption from the Iran War is here to stay,” said George Moran, European macro strategist at RBC Capital Markets. “Higher rates for longer is likely heightening fiscal concerns, particularly if markets begin to expect more fiscal intervention.”

Elevated interest rates and inflation expectations will become a greater problem for equity valuations as time goes on, said Emma Moriarty, portfolio manager at CG Asset Management. The longer the Strait of Hormuz remains shut, the longer the cocktail of macro pressures will persist, and the more immediate the risk of a more serious correction, she said.

“We expect bonds and commodities to continue to price in these risks most rapidly,” Moriarty said. “The longer this persists, the more likely higher interest rates and energy prices start to have a more sustained impact on corporate profits. This is particularly an issue given elevated equity valuations.”

Corporate News:

NextEra Energy Inc. agreed to pay about $67 billion in stock for Dominion Energy Inc. in the biggest power acquisition ever, creating a giant utility extending from Florida to the data centers clustered in Virginia. Commerzbank AG urged its investors to spurn UniCredit SpA’s acquisition bid as it doesn’t offer a good enough price, further ratcheting up tensions in the 19-months takeover saga. Shares in UnitedHealth Group Inc. fell as much as 5.6% in premarket trading after Berkshire Hathaway exited its stake in the health insurer. The conglomerate also disclosed that it amassed a $2.6 billion stake in Delta Airlines Inc., boosting the carrier’s shares. EchoStar Corp., Rocket Lab Corp. and AST SpaceMobile Inc. rallied in premarket trading after Elon Musk said he’s back in Texas to work on plans for an initial public offering of SpaceX. Samsung Electronics Co.’s shares jumped after company management entered make-or-break wage negotiations with its largest labor union aimed at averting a strike that could disrupt operations at the world’s biggest memory chipmaker. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 8:52 a.m. New York time Nasdaq 100 futures rose 0.5% Futures on the Dow Jones Industrial Average were little changed The Stoxx Europe 600 rose 0.6% The MSCI World Index was little changed Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.2% to $1.1651 The British pound rose 0.5% to $1.3390 The Japanese yen was little changed at 158.73 per dollar Cryptocurrencies

Bitcoin fell 0.9% to $77,575.92 Ether fell 1.8% to $2,149.51 Bonds

The yield on 10-year Treasuries declined two basis points to 4.57% Germany’s 10-year yield declined three basis points to 3.14% Britain’s 10-year yield declined seven basis points to 5.10% Commodities

West Texas Intermediate crude fell 2% to $103.28 a barrel Spot gold rose 0.6% to $4,567.25 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sujata Rao, Neil Campling, James Hirai, Margaryta Kirakosian and Subrat Patnaik.

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