Key Takeaways
- Oil prices slid below USD 100 per barrel after President Donald Trump suggested the war in Iran could end “very soon.”
- US futures pointed to a positive open, though less pronounced than European and Asian peers.
- Bond yields also ticked lower on hopes of an improved economic outlook.
Stocks rose as energy prices shed the prior session’s rapid gains after President Donald Trump suggested that the US-Israeli war with Iran could end sooner than previously thought.
Contracts on the S&P 500 index and the Nasdaq 100 index were both up by about 0.3% early on Tuesday, as oil prices fell back below USD 100. On Monday, US President Donald Trump made comments to press that the war would end “very soon”, and posted to social media threatening Iran if obstructions in Hormuz Strait shipping continue.
“TACO had to happen and I guess Trump just revealed his pain threshold,” Neil Wilson, investor strategist at Saxo UK, says, referring to the trending Wall Street acronym for “Trump always chickens out.”
“Monday’s events show that the US administration is more sensitive to energy than it seemed. However, oil needs to start flowing again for this dollar reversal to extend,” ING analysts write in a note.
The Morningstar Europe Index rose 2% at Tuesday’s open, on track for its biggest jump in over ten months. The region’s banking stocks were among the top gainers as markets bet on an improved economic outlook. Asian stocks also recovered, with the Morningstar Asia Index up 3.1% at the close in dollar terms.
So far since the start of hostilities, US equities have markedly outperformed peers in Asia and Europe, where economies are more reliant on energy imports.
Oil prices meanwhile dropped below dropped towards USD 90, having surged sharply in the previous session. Brent crude was down 7.5% at USD 92 and WTI crude was 8% lower at USD 88. European gas prices also fell, with the TTF benchmark down 14% to EUR 48, having soared more than 50% since the start of the conflict.
Political Signalling Drives Global Markets
Wall Street whipsawed in the previous session after President Trump told CBS that “the war is very complete, pretty much” and that he was “thinking about” taking over the Strait of Hormuz – the key global chokepoint for oil and gas supplies.
“We’re achieving major strides toward completing our military objective,” Trump said in a separate press conference Monday evening, in which he suggested that the conflict would end “very soon”. He added that he was focused on “keeping energy and oil flowing to the world.”
Israel’s Prime Minister Benjamin Netanyahu nevertheless said that the campaign against Iran was “not done yet” in comments made before Trump’s speech but released Tuesday.
Early Signs of Calm
Bond yields also ticked lower and traders pulled back their bets on interest rates amid easing concerns around inflation and a wider economic fallout from the war.
The US 10-year Treasury yield fell 0.2 percentage points to 4.11%. The US dollar dipped, with the dollar index, which tracks the USD against a basket of currencies, falling to 98.57. Gold ticked up 0.9% to USD 5,183.
UK gilt and German bund yields also ticked lower, with the UK’s 10-year benchmark down 0.6 percentage points at 4.57% and Germany’s 10-year down 0.2 percentage points at 2.84%.
“It completes a pretty madcap couple of days for the markets,” Saxo’s Wilson says. “But we should note that oil and gas prices, while sharply lower over the last 24 hours, remain higher than before the war. Stocks are still down materially.”
“The risks are still high, just not as elevated as predicted over the weekend,” he adds. “Trump had to do something to calm markets – so this cannot be seen as a sign peace is about to break out – there is a tactical element to these comments, but nevertheless it underlines that the US isn’t going to push this to breaking point.”
