Major stock indexes and bond prices rallied while oil futures tumbled yesterday as a preliminary peace agreement between the US and Iran was expected to ease inflationary pressures globally and lessen the need for higher interest rates.
The Dow hit a record high, while optimism over the deal drove the STOXX 600 to a record closing high.
The US and Iran said they had agreed to end their war and reopen the Strait of Hormuz, news that brought relief to oil traders although the pact may hinge on an end to Israel’s hostilities in Lebanon, and defers talks on Tehran’s nuclear programme.
Iran said traffic through the Strait of Hormuz would be regulated by Tehran and Oman, a potential blow to the rules of free trade that suggests there might be a toll of some kind on transits.
“The market is responding to the peace deal,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“While it doesn’t really accomplish the real motive for the war – that is to rein in the prospects of Iran having the capabilities of a nuclear bomb – it is welcoming to know the Strait of Hormuz will be opening up,” he said.
“This news is likely to make a good case for a summer rally that can broaden out.” Investors said it could be a relief for the crowd of central banks meeting this week, easing some pressure to tighten policy to head off an energy-driven rise in inflationary expectations.
Markets had already priced in a likely deal but the confirmation was enough to send oil prices down 5 per cent. US crude was last down 5.07pc at $80.60 a barrel and Brent was at $83.13 per barrel, down 4.81pc on the day.
The Dow Jones Industrial Average rose 638.83 points, or 1.24pc, to 51,839.01, the S&P 500 rose 128.52 points, or 1.73pc, to 7,559.98 and the Nasdaq Composite rose 692.81 points, or 2.68pc, to 26,581.72.
SpaceX’s shares were up more than 10pc after the Elon Musk-led firm ended its blockbuster IPO with a more than $2 trillion valuation on Friday.
Markets were relieved by the smooth trading during its landmark Nasdaq launch, setting a new template for companies and exchanges bracing for the highly anticipated OpenAI and Anthropic IPOs expected later this year.
Shares of United Airlines rose 5.7pc and Delta, American Airlines, Norwegian Cruise and Carnival also gained. MSCI’s gauge of stocks across the globe rose 19.37 points, or 1.74pc, to 1,131.68. The pan-European STOXX 600 was last up 0.25pc.
The prospect of cheaper oil will be a boon to Japan which is a net importer of energy.
Overnight the Nikkei had surged 5pc. South Korea’s red-hot market gained 5.2pc, and Chinese blue chips firmed 1.4pc.
Central banks of the US, Britain, Japan, Australia, Switzerland, Sweden, Norway and Russia are set to hold policy meetings this week, with Japan considered likely to lift rates this time.
The Federal Reserve is widely expected to leave rates at 3.50pc to 3.75pc tomorrow at Chair Kevin Warsh’s debut meeting. The statement, economic projections and news conference will be scrutinised for any signs of the Fed dropping its easing bias as officials grow more hawkish on inflation risks.
Saxo Bank’s Hardy said the change of hands was set to be the biggest at the world’s most influential central bank since Ben Bernanke succeeded Alan Greenspan in early 2006.
US Treasury prices rallied – pushing yields lower – on hopes that oil prices would now fall sustainably and lessen the upside risks for inflation. The yield on benchmark US 10-year notes fell 2.58 basis points to 4.459pc, from 4.485pc late on Friday. The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, fell 4.39 basis points to 4.041pc, from 4.085pc late on Friday.
Earlier, the equivalent two-year German yield, sensitive to European Central Bank interest rate expectations, fell 4 basis points to a two-week low of 2.57pc. The US dollar fell broadly, hitting a 10-day low against the euro and sterling.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.34pc to 99.46, with the euro up 0.41pc at $1.1616, its highest since June 5. Sterling strengthened 0.22pc to $1.3435.
The dollar was nearly flat against the Japanese yen , which is stuck in a bear trend even though the Bank of Japan is expected to raise rates by 25 basis points to 1pc today. The Bank of England is expected to hold rates at 3.75pc on Thursday and through 2026. In cryptocurrencies, bitcoin gained 5.1pc. Spot gold rose 3.16pc to $4,352.25 an ounce.
l Bahrain All Share Index has closed at 2,000.23 points, marking an increase of 8.35 points above the previous closing.
This increase was due to a rise in the communications services sector, the financials sector, the materials sector and the real estate sector.
Bahrain lslamic Index has closed at 972.72 points, marking a decrease of 0.52 points below the previous closing.
Results indicated that 148 equity transactions took place with a volume of 4,002,570 worth BD 1,645,950.
Investors traded mainly in the financials sector, representing 74.65pc of the total value of securities traded.
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