Stocks, oil decline as Israel-Iran ceasefire appears shaky

by Andre Janse van Vuuren and Winnie Hsu

Global stocks trimmed gains and oil pared losses after Israel vowed to retaliate for an Iranian missile strike, hours after US President Donald Trump announced a ceasefire agreement between the warring nations.

Brent crude reduced a slump of as much as 5.6% to trade near $70 a barrel. S&P 500 futures rose 0.7% after earlier gains of more than 1%. The dollar dropped 0.3%.

Trump’s initial statement was followed soon by a confirmation from Israeli Prime Minister Benjamin Netanyahu that his country agreed to a truce. Iranian Foreign Minister Abbas Araghchi said in an earlier post that his country would stop firing so long as Israel does. Still, hours after the declarations, Israel said its identified a missile launch from Iran and instructed the military “respond forcefully to Iran’s violation of the ceasefire.”

The string of announcements followed a turbulent stretch in financial markets, which have been roiled for nearly two weeks by fears of an escalating conflict. Volatility was particularly high in oil, as concerns over supply and shipping disruptions pushed Brent crude to nearly $80 a barrel.

“If the ceasefire holds – and there is no guarantee that it will - it will undoubtedly be greeted positively by markets as it will at the margin reduce uncertainty,” said Daniel Murray, chief executive officer of EFG Asset Management in Switzerland. Lower oil prices will reduce inflationary pressure and “also help support consumption trends and hence growth overall.”

The yen and risk-sensitive New Zealand dollar led gains in Group-of-10 currencies, followed by the Australian dollar.

“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 Tuesday’s market action, with the yield on the benchmark 10-year note dropping two basis points to 4.33%.

Federal Reserve Chair Jerome Powell will likely have to explain why he and fellow policymakers seem resolved to continue holding interest rates for the time being when he testifies before Congress later today and Wednesday.

“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,” 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.

Corporate Highlights:

• Spain’s government is set to impose additional conditions on BBVA SA’s planned takeover of Banco Sabadell SA, La Vanguardia reported.
• Alphabet Inc.’s Google is set to face more scrutiny from the UK’s antitrust watchdog over its online search and advertising business.
• Nvidia Corp. Chief Executive Officer Jensen Huang has started selling the chipmaker’s stock, his first transactions under a plan that allows him to offload up to $865 million worth by year’s end.
• Spanish drugmaker Grifols SA paid a higher price to buy blood plasma from an entity linked to its controlling family than from third-party suppliers, according to a regulator’s findings submitted in a court case.

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 1.2% as of 9:15 a.m. London time
• S&P 500 futures rose 0.8%
• Nasdaq 100 futures rose 1.1%
• Futures on the Dow Jones Industrial Average rose 0.6%
• The MSCI Asia Pacific Index rose 2.1%
• The MSCI Emerging Markets Index rose 2.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%
• The euro rose 0.1% to $1.1593
• The Japanese yen rose 0.7% to 145.08 per dollar
• The offshore yuan was little changed at 7.1777 per dollar
• The British pound rose 0.5% to $1.3587

Cryptocurrencies

• Bitcoin rose 1.1% to $104,896.7
• Ether rose 1.7% to $2,388.31

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.33%
• Germany’s 10-year yield advanced one basis point to 2.52%
• Britain’s 10-year yield was little changed at 4.50%

Commodities

• Brent crude fell 2.5% to $69.69 a barrel
• Spot gold fell 1.1% to $3,331.85 an ounce

This story was produced with the assistance of Bloomberg Automation.

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