By Nell Mackenzie and Ankur Banerjee
LONDON/SINGAPORE, May 25 (Reuters) – Stocks surged and the U.S. dollar and oil prices slid on Monday as the prospect of a deal to end the Iran war buoyed risk appetite, although a lack of clarity over when the Strait of Hormuz would open kept enthusiasm in check.
The nearly three-month-long conflict in the Middle East has driven energy prices sharply higher and reshaped the global rates outlook, as inflation concerns intensify following Tehran’s effective shutdown of the key strait.
U.S. President Donald Trump said on Sunday he had told his representatives not to rush into any deal with Iran and his administration played down hopes of an imminent breakthrough.
Just a day earlier, Trump said Washington and Iran had “largely negotiated” a memorandum of understanding on a deal that would reopen the waterway, which carried one-fifth of global oil and liquefied natural gas shipments before the war.
Chris Weston, head of research at Pepperstone, said markets have become less focused on the timing of a resolution and instead been keeping an eye on the tone of the headlines.
“The tone has been consistently towards some sort of resolution… We’ve become very patient for a resolution deadline,” he said.
Stock markets brushed off comments from Iran’s foreign ministry spokesperson on Monday saying that while many topics had been agreed, this did not mean Tehran is close to signing a peace deal.
The pan-European STOXX 600 climbed around 1% to 631.1, while Nasdaq futures were 1.4% higher and S&P futures were up 1%. However, liquidity was likely to be thin, with several markets including in Britain and the United States closed for public holidays.
The euro zone government bond market was on a tear, with Germany’s 10-year government bond yields hitting their lowest since April 8, last down almost 10 basis points while Italy’s 10-year yields fell to their lowest since April 17.
OIL PRICE SETS THE TONE FOR MARKETS
For much of the year, oil prices have steered broader markets, as investors sift often conflicting signals from Washington and Tehran since a fragile ceasefire took hold in April.
On Monday, oil prices hit two-week lows, with Brent crude futures down over $5, or about 4.9%, to $98.45 a barrel, while U.S. West Texas Intermediate was at $91.67 a barrel, also down about 4.9%. [O/R]
Analysts expect oil prices to stay elevated even if there is a resolution in the near term, and they are unlikely to return to levels before the war as it will take time to remedy supply chain disruption from the conflict.
