Stocks gained and oil fell after the Wall Street Journal reported that President Donald Trump told aides he's willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed. Futures contracts for the S&P 500 Index erased declines to climb 1%, while West Texas Intermediate crude oil slipped 1.3% after earlier rising as much as 3.9%.
Stocks had opened lower in Asia and oil jumped after Iran struck a Kuwaiti crude oil carrier in Dubai. That pushed the MSCI Asia Pacific Index down 1.3%, briefly erasing its gains for the year, and putting it on course for its worst month since October 2008.
The Middle East conflict, now in its fifth week, has rattled global markets as it heightens the risk of a simultaneous rise in inflation and slowdown in economic growth. Disruptions to the Strait of Hormuz — a key energy corridor — have driven crude oil prices higher, adding to price pressures and putting the S&P 500 on track for its biggest monthly drop since 2022.
S&P 500 posts its longest losing streak since 2022
Photo Credit: (Photo: Bloomberg)
“Risk assets have been waiting for any excuses to rally,” said Anna Wu, a cross-asset strategist at VanEck Associates Corp. “So a narrative change is adrenaline to sentiment. However, again this is not yet mutual nor final. Could be too early to set this as the base case.”
In recent days, Trump and his aides assessed that a mission to pry open the Strait of Hormuz would push the conflict beyond his timeline of four-to-six weeks, the Wall Street Journal reported.
Over the past month, Trump has expressed various opinions in public on how to handle the closure of the waterway, part of a larger pattern of giving conflicting goals and objectives of the war overall. He has at times threatened to bomb civilian energy infrastructure if the channel isn't reopened by a certain date. On other occasions, he has played down the importance of the strait to the U.S. and said its closure is a problem for other nations to solve.
“The market has been treated to a further barrage of geopolitical headline risk, and this will only remain the case for the days and possibly weeks ahead,” Chris Weston, head of research at Pepperstone Group in Melbourne, write in a note. “There remains increased skepticism around a near-term ceasefire.”
Elsewhere, Treasuries extended gains after the Wall Street Journal report, with the benchmark 10-year yield dropping three basis points to 4.32%.
Treasuries had advanced on Monday after Federal Reserve Chair Jerome Powell downplayed near-term inflation risks from higher energy prices.
Meantime, the trading desk at Goldman Sachs Group Inc. said signs of capitulation are starting to emerge among hedge funds, and the systematic community is running out of steam. It anticipates that trend-following investor CTAs will be buyers in every scenario over the next month.
The Nasdaq 100 is trading 12% below its October record. The rout was spurred by concern that surging oil prices from the war in the Middle East could choke off economic growth and reignite inflation.
“The market continues to be headline-driven as the Trump Administration has delivered a variety of messages surrounding de-escalation and re-escalation of the war in Iran,” said Chris Senyek at Wolfe Research. “As such, we maintain our defensively positioned posture.”
Key Events This Week
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 1% as of 10:41 a.m. Tokyo time
- Nikkei 225 futures (OSE) rose 0.2%
- Japan's Topix rose 0.9%
- Australia's S&P/ASX 200 rose 0.9%
- Hong Kong's Hang Seng rose 0.9%
- The Shanghai Composite rose 0.5%
- Euro Stoxx 50 futures rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to $1.1485
- The Japanese yen was unchanged at 159.71 per dollar
- The offshore yuan rose 0.1% to 6.9068 per dollar
Cryptocurrencies
- Bitcoin rose 2.2% to $68,091.35
- Ether rose 2.8% to $2,077.9
Bonds
- The yield on 10-year Treasuries declined three basis points to 4.32%
- Japan's 10-year yield declined one basis point to 2.350%
- Australia's 10-year yield declined seven basis points to 5.00%
Commodities
- West Texas Intermediate crude fell 1.6% to $101.25 a barrel
- Spot gold rose 2.1% to $4,606.90 an ounce
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