Stock Futures, Bonds Advance on Trump War Report: Markets Wrap

(Bloomberg) — Equity-index futures rose and oil erased gains after the Wall Street Journal reported that President Donald Trump told aides he’s willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed.

Futures for the S&P 500 Index climbed 0.8%, while those for European shares rose 0.3% on optimism an end to the conflict may be getting closer. A rebound in Asian shares, however, faded, with the MSCI Asia Pacific Index dropping 1% and on track for its worst month since October 2008. Chip stocks declined.

West Texas Intermediate erased an earlier advance to be little changed around $103 a barrel as investors bet on easing tensions in the Middle East. The commodity had earlier risen to almost $107 a barrel. Treasuries extended gains and the dollar weakened against most of its Group-of-10 peers.

The whipsaw moves followed a weak open for stocks and a jump in oil prices after Iran struck a Kuwaiti crude oil carrier in Dubai.

A US withdrawal from the Iran conflict would help ease tensions and improve prospects for reopening the Strait of Hormuz — a key artery whose disruption has driven oil prices higher. Restoring flows from the Middle East would benefit major importers in Asia such as India and China and help alleviate concerns about a slowdown in global economic growth.

“The short-term view is that an end to the war would be a welcome development,” said Tim Waterer, a chief market analyst at KCM Trade. “But if the Strait of Hormuz remains closed, this leaves global energy markets susceptible to further supply disruptions.”

In recent days, Trump and his aides assessed that a mission to pry open the Strait of Hormuz would push the conflict beyond his timeline of four-to-six weeks, the Wall Street Journal reported, citing administration officials it did not name.

Over the past month, Trump has expressed various opinions in public on how to handle the closure of the waterway, part of a larger pattern of giving conflicting goals and objectives for the war overall. He has at times threatened to bomb civilian energy infrastructure if the channel isn’t reopened by a certain date. On other occasions, he has played down the importance of the strait to the US and said its closure is a problem for other nations to solve.

“Risk assets have been waiting for any excuses to rally,” said Anna Wu, a cross-asset strategist at VanEck Associates Corp. “So a narrative change is adrenaline to sentiment. However, again this is not yet mutual nor final. Could be too early to set this as the base case.”

What Bloomberg strategists say…

“Investors are seriously leaning into hopes for a path toward peace. Similar bursts of optimism have turned around when either Trump or Iran, or both, signaled the war would grind on. But for now optimism is triumphing in the short term at the least.”

— Garfield Reynolds, MLIV Asia Team Leader. Click here for the full analysis.

After a month of fighting, it’s arguably Iran that has secured the most significant strategic victory — a tightening grip over traffic through the Strait of Hormuz. So far in March, barely six vessels per day on average have traversed the narrow waterway connecting the Persian Gulf to the world, in either direction. That compares with about 135 a day in normal times.

Elsewhere, Treasuries rallied after the Wall Street Journal report, with the benchmark 10-year yield dropping two basis points to 4.33%. The securities had advanced on Monday after Federal Reserve Chair Jerome Powell downplayed near-term inflation risks from higher energy prices.

As sentiment improved following the WSJ report, gold rose 1% to trade around $4,550 an ounce, while silver jumped 2.7%. The Bloomberg Dollar Spot Index was little changed after five days of gains.

“We would caution that this move may prove short-lived, given the Iran conflict remains ongoing and the Strait of Hormuz remains shut,” said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank in Sydney.

A selloff in chip stocks was another theme that traders were monitoring. Samsung Electronics Co. slumped nearly 4% and SK Hynix Inc. dropped as much as 8.1%.

That came after Micron Technology Inc. closed 9.9% lower in US trading Monday and slumped even further in the post-market session.

Some investors said Tuesday’s moves were part of the ongoing volatility, rather than a fundamental easing of risk sentiment, until more substantive concessions are made or a clear end to the conflict emerges.

“I see the latest headlines as a potential trigger for short-term volatility,” said Dilin Wu, a strategist at Pepperstone. “But it’s premature to read them as a sign that the conflict is ending. Some of these signals may simply reflect a strategy to manage market expectations and stabilize financial conditions.”

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.8% as of 1:51 p.m. Tokyo time Nikkei 225 futures (OSE) fell 1.5% Japan’s Topix fell 0.9% Australia’s S&P/ASX 200 rose 0.5% Hong Kong’s Hang Seng fell 0.5% The Shanghai Composite fell 0.4% Euro Stoxx 50 futures rose 0.3% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1470 The Japanese yen was little changed at 159.64 per dollar The offshore yuan was little changed at 6.9161 per dollar Cryptocurrencies

Bitcoin rose 1.5% to $67,607.51 Ether rose 2.1% to $2,064.82 Bonds

The yield on 10-year Treasuries declined three basis points to 4.32% Japan’s 10-year yield declined 2.5 basis points to 2.335% Australia’s 10-year yield declined nine basis points to 4.97% Commodities

West Texas Intermediate crude fell 0.2% to $102.66 a barrel Spot gold rose 1.2% to $4,563.99 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Aya Wagatsuma and Masaki Kondo.

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