Oil slumps, shares rally on Iran-Israel ceasefire

CNA

4 days ago

SYDNEY/LONDON :Oil tumbled nearly 4 per cent, global shares surged and the dollar dropped on Tuesday as markets took heart from a ceasefire between Israel and Iran and shrugged off what U.S. President Donald Trump said were violations by both sides.
Brent futures had already slid 7 per cent on Monday and U.S. shares jumped after Iran made only a token retaliation against a U.S. base to an attack over the weekend, and signalled it was done for now.
With the immediate threat to the vital Strait of Hormuz shipping lane seemingly over, the Brent benchmark touched its lowest since June 11 and was last at $68.81 a barrel, down 3.7 per cent. U.S. crude futures dropped 3.7 per cent to $65.91 a barrel. [O/R]
"Investors mostly shrugged at what appeared on the surface a seismic geopolitical event over the weekend and those who kept their nerve and held off from de-risking have so far been proven right," said Kenneth Broux, head of corporate research FX and rates at Societe Generale.
While the ceasefire so far has seemed shaky - Trump said he was "not happy" with either side for violating the truce, particularly with Israel - risk assets held onto their earlier gains.
S&P 500 futures rose 0.8 per cent and Nasdaq futures were 1 per cent higher. Europe's Stoxx 600 gained 1.3 per cent, with travel stocks including airlines surging 3.8 per cent, while oil and gas names shed 2 per cent.
Earlier in the day, MSCI's broadest index of Asia-Pacific shares outside Japan jumped 2.2 per cent, while Japan's Nikkei rallied 1.1 per cent.
A further sign of the sudden improvement in sentiment is that emerging market countries - from Mexico to Kazakhstan via Turkey - have rushed to issue debt in the past two days, as have many companies.
But the positive news did not spill over into the bond market where the focus instead was on Germany's draft budget, which includes record investment, requiring higher borrowing.
The impact was particularly felt on longer dated bonds. Germany's 30-year yield rose 8 basis points to 3.06 per cent and its 10-year yield rose 5 bps to 2.60 per cent.
Those moves rippled across markets, with the U.S. 10-year yield up 3 bps at 4.35 per cent and Britain's 10-year yield up 2 bps to 4.51 per cent, though increasing bets on U.S. rate cuts this year kept U.S. bonds in check.
RATE CUTS APPROACHING?
Investors are also keeping a close eye on remarks from Federal Reserve policymakers, who in aggregate have been nervous in recent months about giving any signs that rate cuts are imminent.
However, Vice Chair for Supervision Michelle Bowman said on Monday the time to cut interest rates was getting nearer as risks to the job market may be on the rise.
That followed Fed Governor Christopher Waller saying on Friday he would consider a rate cut at the July 29-30 meeting, though Atlanta Fed President Raphael Bostic told Reuters in a story published on Tuesday that the Fed need not cut interest rates with companies planning to raise prices later this year.
Fed Chair Jerome Powell will appear before Congress later on Tuesday and, so far, has been more cautious about a near-term easing.
Markets still only imply around a 20 per cent chance the Fed will cut at its next meeting on July 30, but a September cut is near to fully priced.
News of the ceasefire saw the dollar extend an overnight retreat and slip 0.8 per cent to 144.9 yen, having come off a six-week high of 148 yen on Monday.
The euro rose 0.2 per cent to $1.1602 on Tuesday, having gained 0.5 per cent overnight.
The yen and euro benefited from the slide in oil prices as both the EU and Japan rely heavily on imports of oil and liquefied natural gas, while the U.S. is a net exporter.