Wall Street rebounded with stocks and bonds climbing after a peace deal between the US and Iran spurred optimism that the reopening of the Strait of Hormuz would alleviate inflation risks. The S&P 500 rose 1.1%, and trading volume spiked to a record due to an estimated $7.5 trillion options expiry. Chipmakers rallied 6.4%, while Treasury yields fell, and US oil edged lower. This deal is expected to ease pressure on energy costs and inflation, potentially influencing the Federal Reserve's interest rate policy.
US Vice President JD Vance downplayed concerns about Iran imposing tolls on traffic through the vital energy waterway, reiterating the deal's potential to stabilize energy prices. Ian Lyngen at BMO Capital Markets noted that progress on releasing oil supply from the Persian Gulf supported equity prices, and lower energy costs eased inflationary concerns, leading to declines in longer-dated Treasury yields. Federal Reserve Chairman Kevin Warsh vowed to restore price stability, with officials signaling growing support for rate hikes, though lower energy costs might allow the Fed to maintain current policy settings.
Fawad Razaqzada at Forex.com suggested that if lower energy costs continue to moderate inflation, policymakers might find sufficient justification to keep rates unchanged rather than hiking. Meanwhile, the Bank of England held rates at 3.75%, citing the encouraging drop in oil prices, despite two of nine policymakers voting for an immediate quarter-point hike due to persistent inflation concerns. The dollar index rose 0.3%, the euro fell 0.4% to $1.1460, and the British pound fell 0.7% to $1.3205.
President Donald Trump confirmed signing the US-Iran memorandum of understanding (MOU), which was followed by Iran's President signing the document. This deal, allowing Iran to sell oil freely and reopening the Strait of Hormuz, caused oil prices to waver. Brent crude initially fell but settled 0.38% higher at $79.85 per barrel, while U.S. West Texas Intermediate fell 0.25% to $76.60 a barrel. The Nasdaq gained 2.5%, the Dow Jones Industrial Average rose 0.1%, and the MSCI World Index increased by 0.5%.
