US Markets Rally as Iran Reviews Peace Deal – Nasdaq up 2%
US equities extended their rally in the latest session as risk sentiment strengthened on growing optimism around a potential de-escalation in the Middle East. Reports that Iran is reviewing a fresh US proposal aimed at ending the conflict helped underpin a broad risk-on move across global markets. The major US indices all pushed sharply higher, with the Dow Jones rising 1.24% to 49,910, while the S&P 500 gained 1.46% to close at a fresh record of 7,365. The Nasdaq once again led the advance, climbing 2.02% to 25,838 and marking another record close for the technology-heavy index, helped by strong AMD earnings results. In currency markets, the US dollar softened alongside the improvement in risk appetite, with the USD index falling 0.42% to 98.03. Treasury markets also reflected the shift in sentiment, with yields moving lower across the curve. The US 2-year yield dropped 7.4 basis points to 3.866%, while the 10-year yield declined 7.5 basis points to 4.349%. Commodity markets were particularly active on the geopolitical developments. Oil prices fell sharply as risk premiums were unwound, with Brent crude sliding 7.25% to $101.90 after briefly dipping back below the $100 level during the session. WTI also came under pressure, falling 7.03% to $95.08. In contrast, gold continued to defy its traditional safe-haven role, rallying 2.92% to $4,689.05, supported in part by the weaker US dollar.
Oil Looking Vulnerable on Peace Hopes
Oil prices dropped hard in trading yesterday as peace hopes increased dramatically with news that the US has put a proposal to Iran to end the conflict in the Middle East that will see the Strait of Hormuz reopened and allow 20% of the world’s oil to flow once again. Traders are preparing for more downside moves if a deal is confirmed in the coming sessions, but there are some questions as to how far it will fall, given likely continued concerns on the longevity of the deal and how long it will take for oil flow to return to normal levels once the naval blockades are lifted. At one stage yesterday, WTI traded down as much as 13%, but then closed around 7% from its open, so the initial target for moves lower will be near yesterday’s low at $88.66 a barrel, with trendline support on the daily chart coming in just below at $87.42. Longer-term traders will be looking for prices to return to pre-conflict levels under $70 a barrel, but the path there may not be smooth after the disruptions from the last several weeks. Those wary of a breakdown in negotiations will, however, be looking for sharp moves back to the topside, with the initial target at yesterday’s high of $102.70.
Geopolitics Remain in Focus on Quiet Calendar Day
Looking ahead, the macroeconomic calendar is relatively quiet today, leaving markets highly sensitive to geopolitical headlines. With hopes building around a potential peace agreement, volatility is expected to remain elevated as investors react to any further developments. In the Asian session, attention turns briefly to New Zealand, where RBNZ Governor Anna Breman is scheduled to speak early in the day, with markets watching for any policy signals or commentary on the regional inflation outlook. There is little else on the calendar for the rest of the Asian session and indeed the European session, where mainly lower-tier releases are scheduled. However, the US session does see the release of the Weekly Unemployment Claims (exp. 205k), which will provide a timely read on labour market conditions ahead of tomorrow’s big Non-Farm Payrolls release.
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