Oil slumped and stocks gained as US President Donald Trump said yesterday (24) a ceasefire has been implemented between Israel and Iran, spurring optimism there will be a lasting pause in the conflict.
Brent crude slid almost 5% in early Asian trading, briefly dropping below the level of 12 June, the day before Israel attacked Iran’s nuclear sites.
European and US stock-index futures both jumped, while MSCI’s Asia Pacific share gauge headed for its biggest gain in more than two months. The dollar fell against all its major peers and gold, a haven asset, dropped 1.3%.
Trump’s statement was followed soon after by a confirmation from Israeli Prime Minister Benjamin Netanyahu that his country agreed to a truce. Iranian Foreign Minister Abbas Araghchi said in a post that his country would stop firing so long as Israel does.
The announcement follows a volatile period in which financial markets have been whipsawed for almost two weeks by concern the conflict would keep escalating.
“Following President Trump’s announcement of a provisional ceasefire, market uncertainty has temporarily eased,” said Tomo Kinoshita, global market strategist at Invesco Asset Management in Tokyo. “Going forward, market transparency regarding future developments remains limited, and whether this provisional ceasefire will lead to a permanent one will be a key factor.”
Brent slid toward $ 68 a barrel at the Asian open before trimming declines to be down about 4.2%, while West Texas Intermediate fell 4.4%.
The MSCI Asia Pacific Index of shares jumped about 2%. South Korea’s Kospi was the best-performing major index in the region, surging as much as 2.9%.
‘Rolling over’
The risk-sensitive New Zealand and Australian dollars led gains in Group-of-10 currencies, followed by the yen.
“The US dollar was one of the key beneficiaries of the hostilities so it is now rolling over,” said Sean Callow, a senior analyst at InTouch Capital Markets in Sydney. “Investors have been very keen to draw a line under the Israel-Iran conflict, choosing to leave aside any concerns over the path Iran might choose beyond the very short term.”
Powell awaited
Treasuries were largely left behind by yesterday’s market move, with the yield on the benchmark 10-year note dropping just two basis points to 4.33%.
That was seen as due to uncertainty about what Federal Reserve Chair Jerome Powell will say this week in testimony before the House Financial Services Committee on Tuesday, and on Wednesday before the Senate Banking Committee.
Treasuries had rallied Monday (23) after Federal Reserve Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman both said they could support an interest-rate cut in July if inflation remains contained.
“We expect the market, which has a notoriously short attention span, to shift its focus back to tariffs and the Fed, with Board members showing increased division ahead of Fed Chair Powell’s testimony,” said Tony Sycamore, a market analyst at IG Australia in Sydney, wrote in a note.
Japan auction
Demand at a Japanese 20-year bond sale was lower than the average over the past year, indicating investors are still cautious even after the government adjusted its borrowing plans to calm a surge in yields.
The bid-to-cover ratio - a key gauge of investor interest - at the Ministry of Finance’s sale of the debt was 3.11, less than some market participants were expecting.
While the Middle-East conflict is dominating headlines, selloffs caused by geopolitical events tend to be brief, according to Morgan Stanley.
“History suggests most geopolitically-led selloffs are short-lived/modest,” strategists led by Michael Wilson wrote in a note on Monday. “Oil prices will determine whether volatility persists.”
According to the Morgan Stanley team, prior geopolitical risk events have led to some volatility for equities in the short term, but one, three and 12 months after the events, the S&P 500 has been up 2%, 3%, and 9%, on average, respectively.
(Bloomberg)