Global stock markets rallied and oil prices eased significantly on Monday following news of a tentative deal between the United States and Iran. The agreement aims to extend their ceasefire and reopen the Strait of Hormuz, a critical chokepoint for global oil flow. The S&P 500 rose by 1.7%, driven by hopes that this deal will provide a long-term solution to a conflict that has exacerbated inflation worldwide. The Dow Jones Industrial Average climbed 468 points, or 0.9%, reaching a new record high, while the Nasdaq composite surged by 3.1%.
Oil prices experienced a substantial drop, with Brent crude falling 4.8% to $83.17 per barrel, bringing it back to early March levels. This is significantly lower than the $100-plus per barrel seen just weeks prior. WTI crude oil prices also fell over 4% to a three-month low. The expectation is that lower oil prices will reduce pressure on households and businesses that have faced higher costs for goods such as food, fuel, and fertilizer due to the conflict. This also led to a decline in Treasury yields, as markets anticipate less pressure on central banks to raise interest rates.
While Iran confirmed the deal, it notably excludes a final agreement on critical issues like Iran's nuclear program. Negotiations for these matters are expected to continue over the next 60 days, introducing potential instability. Even if the Strait of Hormuz fully reopens as anticipated on Friday, analysts project it could take months for the energy industry to return to full operational capacity. Traders, who had been increasing bets on a Fed rate hike this year due to inflation and a robust U.S. job market, now see only a 57% chance of a hike, down from 71% a week ago, according to CME Group data. The Fed is widely expected to keep interest rates steady at its upcoming meeting, the first under new Chair Kevin Warsh. However, his post-meeting remarks will be closely watched for future policy indications.
