Stocks Rise, Oil Falls on Iran De-Escalation Hopes: Markets Wrap
(Bloomberg) — Equities rallied and oil dropped as US diplomatic efforts fueled cautious optimism that the Middle East conflict may begin to ease, tempering concerns over prolonged disruption.
Brent crude slid 4% to $100.30 a barrel, underpinning a 1.9% advance in Asian equities, as the prospect of easing tensions in Iran tempered inflation risks and damped expectations for policy tightening. Some of the optimism faded as the European session approached — Brent had dipped to as low $97.15 earlier and Asian shares had risen as much as 2.4%.
Equity-index futures for the US advanced 0.6%, while contracts pointed to about 1% gain in European shares at the open.
Fueling the mood was a 15-point US plan intended to help bring the war with Iran to a close. Earlier, Israel’s Channel 12 reported that Washington was seeking a one-month ceasefire. Even so, attention stayed fixed on the Strait of Hormuz — a vital artery for Middle East oil flows — that remains effectively closed for ships.
“Crude remains the tip of the spear in this headline-driven market,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Reports that a potential 30-day ceasefire may be in the works are easing worst-case pricing scenarios and concerns around demand destruction. Signs there may be an off-ramp are reducing some of the risk premium in the market.”
Financial markets have whipsawed since the conflict erupted in late February, with headline-driven swings leaving traders “stopped out” of positions. Rising volatility in crude is clouding risk assessment, as surging commodities heighten inflation concerns and raise the prospect that policymakers may keep borrowing costs elevated or even tighten further.
The US plans highlight the intensifying urgency within the Trump administration to resolve the conflict as the economic toll mounts.
President Donald Trump has been pushing talks with Iran in a bid to halt the fighting, yet those efforts have been clouded by uncertainty over the structure of negotiations, the Iranian participants and how any deal would be structured.
The details of the 15-point proposal remain unclear, though Trump has publicly mused that any agreement would have to include a prohibition on Iran ever obtaining a nuclear weapon or enriching radioactive material for civilian purposes.
Investors such as Qian Su, head of investment management for Asia at Indosuez Wealth Management, said it’s hard to take Trump at his word.
“We’re defensive, we’re not chasing headlines, we’re waiting for more prominent signs of real resolution on the ground before buying in at a better timing,” she said.
What Bloomberg’s Strategists Say…
“The increasingly soothing US rhetoric about potential peace negotiations is the focus for investors as they drive stocks and bonds higher, along with sending crude futures lower. That may be a vulnerable strategy given that the actions of the three main parties to the conflict — the US, Iran and Israel — signal very little actual de-escalation.”
— Garfield Reynolds, MLIV Asia Team Leader. Click here for full analysis.
In other corners of the market, gold rose for a second day to trade around $4,545 an ounce, and Bitcoin advanced to about $71,000.
Even as reports suggested a possible de-escalation, the conflict continued to rage. Kuwaiti authorities said on Wednesday they were dealing with a fire after drones targeted a fuel tank at the airport, according to the country’s aviation regulator. Israel said it carried out a wave of strikes at targets across Tehran.
Also, the Trump administration ordered the 82nd Airborne Division to deploy about 2,000 soldiers to the region, according to a person familiar with the matter, as the White House weighed options to ease Iran’s hold on the Strait of Hormuz.
Meanwhile, Iran started charging transit fees on some commercial vessels passing through the waterway, people familiar with the matter said. Yet Tehran said non-hostile foreign ships are allowed to cross the waterway on its terms.
“It all comes down to the re-opening of the Strait of Hormuz,” said Matt Maley at Miller Tabak. “So, if we hear that ‘good progress is being made’ in the negotiations at the end of this week, it won’t be enough, if the Strait remains very restricted.”
Corporate News:
SpaceX aims to file a prospectus for an initial public offering as soon as this week, the Information reported, kicking off one of the year’s most-anticipated market debuts. SK Hynix Inc. seeks to list in the US this year, a move that would help it keep pace with artificial intelligence’s voracious demand for memory. Merck & Co. is in advanced talks to buy drugmaker Terns Pharmaceuticals Inc., according to people familiar with the matter. Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.7% as of 6:52 a.m. London time Nasdaq 100 futures rose 0.7% The MSCI Asia Pacific Index rose 1.9% Hong Kong’s Hang Seng rose 0.6% The Shanghai Composite rose 1.3% Euro Stoxx 50 futures rose 1.1% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1600 The Japanese yen fell 0.2% to 158.97 per dollar The offshore yuan was little changed at 6.8981 per dollar The British pound fell 0.2% to $1.3387 Cryptocurrencies
Bitcoin rose 1.6% to $71,167.37 Ether rose 1.1% to $2,171.94 Bonds
The yield on 10-year Treasuries was little changed at 4.35% Japan’s 10-year yield declined 1.5 basis points to 2.250% Australia’s 10-year yield declined nine basis points to 4.96% Commodities
Spot gold rose 1.7% to $4,549.46 an ounce West Texas Intermediate crude fell 3.4% to $89.24 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Ruth Carson, David Finnerty and Gabrielle Ng.
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