Global markets exhibited a mixed performance, largely influenced by an impending US-Iran peace agreement and anticipation surrounding the Federal Reserve's policy meeting. Reports suggested a US-Iran deal could be signed in Switzerland on Friday, June 19, focusing on the reopening of the Strait of Hormuz, with Iran confirming a tentative deal that did not include a final agreement on its nuclear program. This prospect initially boosted investor sentiment, with expectations that the reopening of the Strait of Hormuz would normalize oil flows, though analysts cautioned that full resumption could take months. The agreement has already led to a partial lifting of naval blockades by the U.S. on Iranian vessels.
Oil prices reacted significantly to the news. Brent crude fell by 4.8% to $83.17 per barrel, a notable drop from over $100 per barrel weeks prior, and close to its early March levels. The potential for eased sanctions on Iranian crude, allowing Tehran to sell oil and refined products, further contributed to the decline in prices. However, oil prices edged up slightly in early exchanges the following day after previously plunging more than 5%, reflecting ongoing market sensitivity to developments.
On Wall Street, major indexes closed mixed on Tuesday. The Dow Jones Industrial Average rose 0.64% to a record 52,190.29, while the S&P 500 fell 0.57%, and the Nasdaq Composite lost 1.15%. Asian markets mirrored this mixed sentiment; Japan's Nikkei 225 gained 0.5%, South Korea's Kospi rose 0.7%, but China's Shanghai Composite slipped 0.2%, and Hong Kong's Hang Seng fell 0.4%. Japan's exports notably increased by 17% year-on-year in May, driven by semiconductor demand.
Attention was also heavily focused on the Federal Reserve's policy meeting, the first under new Chair Kevin Warsh. While the Fed was widely expected to keep interest rates unchanged, investors were keenly awaiting Warsh's post-meeting remarks for clues about future policy. There was speculation that the Fed might lower growth forecasts while raising inflation projections, a combination that typically dampens risk appetite. The yield on the benchmark 10-year US Treasury note was little changed at 4.44%, while the US Dollar Index hovered near 99.5. Traders' bets on a Fed rate hike this year decreased from a 71% chance a week ago to 57% following the tentative US-Iran deal, reflecting hopes that lower oil prices would ease inflationary pressures.
The global MSCI world index reached a new all-time high, advancing 0.25%, marking its first new record since hostilities began at the end of February. This contributed to an 11% rebound for MSCI World, with the S&P 500 rising above 7,000 points. European stocks also moved 0.2% higher, and government borrowing costs dipped as traders scaled back expectations for higher interest rates. The U.S. dollar index was around 0.1% stronger after eight consecutive days of declines, with the euro losing some traction and the Japanese yen firming to 158.71.
