LONDON: Global stocks surged on Monday while oil prices and the US dollar eased as markets reacted to growing hopes of a possible deal to end the Iran conflict, though uncertainty over timing and the reopening of the Strait of Hormuz kept gains in check.
Market Reaction to Diplomatic Signals
The nearly three-month war in the Middle East has driven energy prices higher and reshaped global inflation and interest rate expectations after Tehran effectively shut down the key shipping route, which handles about a fifth of global oil and LNG trade.
US President Donald Trump said on Sunday he had instructed negotiators not to rush a deal with Iran, tempering earlier optimism after suggesting that Washington and Tehran had largely agreed on a framework to reopen the waterway. Market sentiment, however, remained sensitive to shifting headlines rather than firm developments.
“The tone has been consistently towards some sort of resolution… we’ve become very patient for a resolution deadline,” said Chris Weston, head of research at Pepperstone.
Equities Rally
Equity markets largely shrugged off comments from Iran’s foreign ministry that a deal was not imminent, focusing instead on risk-on momentum. The pan-European STOXX 600 rose about 1 percent, while US stock futures pointed higher, with Nasdaq futures up 1.4 percent and S&P 500 futures gaining 1 percent.
In Asia, Japan’s Nikkei jumped around 3 percent, breaking above 65,000 for the first time, while Taiwan’s benchmark index also hit a record high, supported by strong technology and AI-related gains.
Oil Prices Drop Sharply
Oil prices, the key driver of global market moves this year, fell sharply to two-week lows. Brent crude dropped nearly 5 percent to 98.45abarrel,whileUSWestTexasIntermediatedeclinedto91.67. Analysts said prices are likely to remain elevated even if a deal is reached, citing ongoing supply chain disruptions. Barclays maintained its 2026 Brent forecast at $100, while warning risks remain tilted to the upside.
Currencies and Bonds
Safe-haven currencies weakened, with the euro rising 0.3 percent to $1.1640. Bond markets also rallied, with German 10-year yields hitting their lowest level since early April. Meanwhile, shifting energy prices have led investors to reassess interest rate expectations, with markets now pricing in a US Federal Reserve rate hike in early 2027. Economists warn the Fed faces a difficult balancing act as higher energy costs pressure inflation while slowing growth weighs on demand.
