U.S. President Donald Trump said on Monday the U.S. has had good and productive conversations with Iran and he will order the military to postpone any military strikes against Iranian power plants and energy infrastructure.
The price of oil plunged and stock and bond prices surged following the news.
But complicating the market reaction, Iran’s Fars news agency citing source said there are no direct communication with the U.S. nor through intermediaries.
MARKET REACTION:
Benchmark Brent crude fell as much as 13% and was last down 6.5% at $104 a barrel. [O/R]
Europe’s broad STOXX 600 was last up 0.4%, it had earlier been down 2.5%.
S&P 500 futures rose 2.3%.
The 10-year Treasury yield was last flat on the day, having dropped as much as 8.7 basis points, while 10-year German Bund yields were down 1 bp.
The euro was last flat against the dollar at $1.1557, having traded at a low of $1.1485 earlier.
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH IN FAIRFIELD, CONNECTICUT:
“It’s everything anybody who hasn’t sold was either hoping for or expecting eventually, some kind of reversal from the president. This is the same type of thing that happened after Liberation Day: a whipsaw move in the market that was unexpected at the time but has since become more expected.
“That’s why you haven’t seen markets completely blow up to the downside, even as the war has been escalating. Sooner or later, those of us who’ve experienced this expected something like this could happen at any given moment.”
“This type of action doesn’t bring that it actually fuels volatility. Right now, the question for investors is whether to be a buyer here or whether the market snaps back the other way. And it could. This is the President that we have. As a result, those who sold or tried to protect their portfolios are now questioning themselves and asking what to do next.”
FIONA CINCOTTA, SENIOR MARKET ANALYST, CITY INDEX, LONDON:
“It’s exactly what the market needed to hear to sort of reprice worst-case expectations. This means is there is potential for the Straight of Hormuz to reopen; it’s being priced in almost immediately.”
“Whether this recovery in equities continues depends on whether we get more supportive comments, particularly from Iran as well, corroborating this idea that there is progress being made.”
MARCO VAILATI, HEAD OF RESEARCH AND INVESTMENTS, CASSA LOMBARDA, MILAN
“Markets are pricing clear exaggerations. Before the conflict, the economic backdrop was constructive, with ample oil inventories and excess supply, yet we are now seeing a sizeable war premium in oil and other commodities, while inflation fears and the swing in rate expectations look overdone to me.”
“President Trump faces strong pressure to accelerate a resolution, with fuel prices rising at the pump and mid‑term elections drawing closer, and he remains highly sensitive to equity market moves. If macro conditions and earnings estimates hold — and if the bombs do not destroy those estimates — the current volatility is creating value, particularly in bonds and equities.”
ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, NY:
“That would be a significant positive. We’ll have to see what comes of this, but at least for today, you’ve got the potential for constructive conversations happening and perhaps some type of resolution coming in the Middle East, and that’s exactly what the markets want to see when you start in the week.”
“All of the things that you have seen will likely unwind. So you’ll see energy stocks come off and you’ll see some of the battered sectors across the board. And it’s been pretty universal in terms of equities. By the end of the week, all 11 of the S&P 500 sectors had closed in the red, except for energy, so you would suspect you’d start to see people navigate towards risk assets, especially those that have been beaten up the most.”
NICK REES, HEAD OF MACRO RESEARCH, MONEX EUROPE, LONDON:
“One of the big risks we’ve been looking at was: would Trump unilaterally declare victory? And this plays into that narrative. If that were to play out, that’d be risk on for equities, negative for oil.
Of course, let’s wait for the detail, we aren’t getting too excited just yet, but it does look like Trump has decided he’s had enough and he’s looking for an off ramp. But markets aren’t hundred percent that’s going to happen either, and that just shows the uncertainty.”
KENNETH BROUX, HEAD OF CORPORATE RESEARCH FX AND RATES, SOCIETE GENERALE, LONDON:
“This confirms what the head from the IAEA has been saying over the weekend, that discussions were taking place between both sides.
“So, the question is does he (Trump) drop the deadline of 00:45 CET to re-open the Strait of Hormuz?”
“Buy the front end in bonds!”
CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG MARKETS, UK:
“This is obviously a postponement, not a complete cease-fire and we will see what happens from here.”
“What’s done is still not undone, so the impact has yet to be seen. But obviously markets are breathing a sigh of relief on these news.”
ELIAS HADDAD, GLOBAL HEAD OF MARKETS STRATEGY, BROWN BROTHERS HARRIMAN, LONDON
“It’s clearly jaw-boning in the face of the meltdown that we’ve seen. We’re seeing a bit of a knee-jerk reaction to this positive news. If it’s a legitimate de-escalation, we could see a bit more of a relief rally in risk assets.”
“It’s still hard to say whether this is just political jaw boning or a legitimate de-escalation in this crisis. There’s certainly room for a bit of an unwind in the fear trade. A more sustained rally in risk assets will depend on whether this is legit de-escalation or simply a pause before a next leg up in escalation.”
(Reporting by the Reuters Markets Team; Compiled by Dhara Ranasinghe, editing by Alun John)
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