Global stocks rallied and oil prices reversed gains yesterday as hopes of a de-escalation in the Iran conflict fuelled the biggest rebound in regional equities in more than three years.
President Donald Trump said the US could end its military attacks on Iran in two to three weeks, and could return for “spot hits”, if needed.
The US dollar softened against a basket of other currencies, while US Treasury yields rose from their lows after a pair of reports underscored resilience in the US economy, affirming expectations the Federal Reserve will hold off cutting interest rates for some time.
On Wall Street, Dow Jones Industrial Average rose 0.55 per cent to 46,594.37, the S&P 500 gained 0.63pc to 6,569.57 and the Nasdaq Composite climbed 1.01pc to 21,808.66.
In Europe the STOXX 600 jumped 2.24pc on strength from travel and aerospace and defense stocks.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan closed up 4.57pc and Japan’s Nikkei rallied 5.24pc
“Markets are trading this narrative that the war could be over, or at least that the US could withdraw. That is creating this positive sentiment in risk assets,” said Evelyne Gomez-Liechti, multi-asset strategist at Mizuho, though she added she is more inclined to be sceptical about the rally.
Brent crude futures fell 2.23pc to $101.65 a barrel and US crude dropped 2.19pc to $99.16.
Euro zone bond yields dropped on hopes of de-escalation in the Middle East.
Germany’s 10-year yield, the benchmark for the euro zone, dropped to a two-week low of 2.93pc in early trading and was last at 2.96pc.
The US dollar index slipped 0.3pc to 99.43, extending losses from the prior session’s biggest one-day drop in two weeks.
The yield on benchmark US 10-year notes rose 0.8 basis points to 4.319pc.
The 2-year note yield, which typically moves in step with Fed interest rate expectations, rose 0.2 basis points to 3.803pc.
Fed funds futures are pricing an implied 17.9pc chance that a 25-basis-point cut to interest rates could come at the Fed’s two-day meeting ending on July 29, up from a 7.5pc chance a day earlier, according to the CME Group’s FedWatch tool.
Even so, swaps pricing indicates the odds of a cut by April next year are viewed as little better than a coin toss.
A PMI survey showed euro zone manufacturing growth bounced to its strongest in nearly four years in March as supply chain disruptions inflated growth figures.
The International Energy Agency head Fatih Birol said yesterday that oil supply disruptions from the Middle East will rise in April and begin to impact Europe’s economy as the closure of the Strait of Hormuz severely curbs supplies.
The euro was close to a three-week high versus the dollar.
In commodities, gold rose for a fourth session as the dollar slipped, making the metal less expensive to holders of other currencies. Spot prices rose 1.57pc to $4,742.70 an ounce.
Meanwhile, Gulf stock markets ended higher yesterday amid hopes of a de-escalation in the Iran conflict, with Dubai leading gains as its 1 billion dirham ($272.3 million) support package came into effect.
Dubai’s main stock index advanced 2pc, led by a 5.6pc surge in blue-chip developer Emaar Properties and a 4.7pc jump in top lender Emirates NBD.
GCC equity markets advanced as hopes of a de-escalation in Middle East tensions helped restore some stability.
If these expectations are realized, the recovery could become more sustained over the medium term, said Milad Azar, a market analyst at XTB Mena.
Support from the Dubai government’s new package could ease economic pressures and support growth, providing further boost to the market, Azar said. “Additionally, the UAE continues to benefit from resilient fundamentals.”
In Abu Dhabi, the index gained 1.4pc, with Aldar Properties closing 0.9pc higher. The Qatari benchmark index rose 0.8pc, with petrochemicals maker Industries Qatar finishing 3.9pc higher.
Saudi Arabia’s benchmark index added 0.2pc, helped by a 1.2pc gain in Saudi National Bank, the country’s biggest lender by assets, and a 0.6pc rise in oil giant Saudi Aramco.
In Saudi Arabia, the market has stabilized after a steady recovery this month, with still-elevated oil prices continuing to support sentiment, said Azar.
Outside the Gulf, Egypt’s blue-chip index leapt more than 3pc, as most of its constituents were in positive territory including Commercial International Bank, which gained 3.1pc.
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