Wall Street stocks advanced and oil prices plummeted yesterday after US President Donald Trump declared the Middle East war could be “over soon” despite defiant comments from Iran’s military that cast some doubt over the prospects of a swift resolution.
The Dow Jones Industrial Average gained 0.4 per cent, the S&P 500 added 0.3pc, and the Nasdaq Composite rose 0.5pc. Europe’s STOXX 600 index pared some earlier gains but was last up 1.65pc yesterday after declining for three consecutive trading days. MSCI’s broadest index of Asia-Pacific shares outside Japan rose around 3.4pc.
Oil prices plunged over 13pc yesterday after soaring to their highest levels since 2022 in the previous session. Brent futures fell $12.46, or 12.6pc, to $86.50 a barrel yesterday evening, while US West Texas Intermediate (WTI) crude fell $12.24, or 12.9pc, to $82.53.
Steadier investor sentiment triggered a share rebound in Europe and Asia yesterday, while government bond yields dipped and interest rate expectations shifted again. European indexes followed Asia higher to start the day before retracing some gains as the day progressed, with Germany’s DAX last up 2.25pc and France’s CAC 40 adding around 1.85pc.
Money markets cut the chances of a European Central Bank rate hike this year, after this was more than fully priced in late on Monday, while the benchmark German 10-year bond was little changed at 2.86pc. Rate-sensitive two-year yields fell, with Germany’s down 4 bps. Britain’s dropped 10 bps to 3.87pc after hitting 4.23pc on Monday at the height of market worries that surging oil prices would reignite inflation and prompt central banks in Europe to tighten policy later this year.
“Market pricing suggests weeks of disruptions, not days or months,” analysts at BlackRock Investment Institute wrote.
“There’s a risk of a stagflationary shock but it’s not a given, as market pricing indicates.” The yield on the US 10-year Treasury note was last down 1.3 basis points at 4.121pc, having eased more sharply earlier in the day. Traders pushed out bets on the timing of the Federal Reserve’s next rate cut, with the first reduction now not seen until July, according to the CME Group’s FedWatch tool.
“We are still at troubling levels,” ING analysts said, referring to bond yields. “Expect nominal yields to fall for a bit on a reversal trade. But don’t expect a dramatic structural rally in bonds,” they wrote in a client note.
The US dollar index, which measures its performance against a basket of six major currencies, was last slightly lower, extending Monday’s sharp fall. Gold was up around 1.4pc at $5,208 an ounce, while bitcoin added 2.68pc to $70,850.
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