Stock markets worldwide experienced a significant rally following a tentative deal between the United States and Iran to extend a ceasefire and reopen the Strait of Hormuz. This agreement is expected to facilitate the global flow of crude oil, leading to a drop in oil prices. The S&P 500 rose 1.7%, the Dow Jones Industrial Average climbed 468 points (0.9%) to a record high of $51,999.67, and the Nasdaq composite jumped 3.1% to $26,683.94, also reaching a record.
Brent crude oil prices fell 4.8% to $83.17 per barrel, the first time dropping below $80 since March, while U.S. West Texas Intermediate futures lost 5.8% to settle at $76.05. This decline in oil prices is seen as a key factor in alleviating inflationary pressures and potentially reducing the need for central banks to raise interest rates. Traders are now betting on only a 57% chance of a Fed rate hike this year, down from 71% a week ago, according to CME Group data. The yield on the 10-year US Treasury note fell to a one-month low of 4.42%.
The deal includes concessions to Iran, such as the unfreezing of $100 billion in assets and the establishment of a $300 billion reconstruction fund. However, JPMorgan analysts expressed skepticism, assigning a 70% probability that the deal will fail to be finalized, citing Israel's opposition, unresolved nuclear negotiations, and disagreements over transit rules for the Strait of Hormuz. Despite the market's initial enthusiasm, the energy industry may take months to return to full speed even if the Strait of Hormuz fully reopens as expected on Friday.
Asian markets also responded positively to the news, with South Korea's KOSPI index soaring 5.2% and Japan's Nikkei 225 jumping 4.99%. Mainland China's three major A-share indices saw broad gains, with the ChiNext Index up 5.3% and the STAR 50 Index up 5.12%. Attention is also on the Federal Reserve's policy meeting this week, the first under new Chair Kevin Warsh, where the Fed is widely expected to leave interest rates unchanged.
