- Asian stocks rebound as investors embrace a new appetite for risk.
- Brent and US crude fall as supply concerns ease.
- The dollar is weakening as falling energy prices ease inflation fears.
Stock markets surged in Asia on Monday, while the dollar fell and oil prices fell, as news of the U.S.-Iran peace deal boosted risk sentiment and promised to ease inflationary pressures globally.
Prime Minister Shehbaz Sharif said on social media Monday that a deal had been reached, while President Donald Trump said the agreement included opening the Strait of Hormuz, but without giving details.
Iran has said traffic across the strait would be regulated by it and Oman, potentially dealing a blow to free trade rules and suggesting there could be some sort of toll on shipping.
“The lack of detail, particularly on shipping freedom, is a concern but should not constrain markets today as risk appetite increases,” said Sean Callow, senior foreign exchange analyst at ITC Markets.
“The prospect of a lasting drop in energy prices changes the discourse of central banks just before a wave of political decisions.”
This news will come as a relief to all central banks meeting this week, easing some of the pressure to tighten monetary policy to avoid an energy-related rise in inflationary expectations.
Markets had already anticipated a likely agreement, but this confirmation was enough to send Brent crude LCOc1 down 4% to $83.80 per barrel, far from its May peak of $126.41.
U.S. crude CLc1 slipped 4.3% to $81.23 a barrel, but was still above the $67 level it was trading at before the war began.
S&P 500 ESc1 futures climbed 0.8%, while Nasdaq NQc1 futures jumped 1.4% amid a general rise in risk assets. Nikkei NKc1 futures rose 2% to 68,685, well above Friday’s cash close of 66,020.N225.
Central banks are due to meet this week in the US, UK, Japan, Australia, Switzerland, Sweden, Norway and Russia, with Japan this time seen as the country likely to raise rates.
The Federal Reserve is widely expected to leave rates between 3.50% and 3.75% on Wednesday during Chairman Kevin Warsh’s first meeting. The statement, economic projections and news conference will be scrutinized for any signs that the Fed is abandoning its easing bias as officials become more hawkish on inflation risks.
Investors were quick to reduce the chances of a rise this year, with December futures slightly up 4 ticks. A decision from October was now valued at around 40%.
Treasury futures also rose on hopes that oil prices would now fall sustainably and reduce the risks of upward inflation. 10-year bond futures rose 10 ticks TYc1.
Falling yields and generally improving risk largely pushed the U.S. dollar lower, with the euro rising 0.4% to $1.1608 EUR=EBS. The dollar fell 0.2% against the yen to 159.93 JPY=EBS, while the pound sterling rose 0.3% to $1.3446 GBP=.
The Bank of England is expected to keep rates at 3.75% on Thursday and through 2026, and policymakers appear in no rush to tighten them. The BoE vote distribution and monetary policy report will be of interest.
Top UK data includes May inflation and retail sales, as well as April employment. Thursday’s Makerfield election will also be watched as a victory for Labor mayor Andy Burnham could trigger a leadership contest against Prime Minister Keir Starmer.
In commodity markets, falling yields allowed unpaid gold to climb 1.4% to $4,280 an ounce.
