Asian markets reacted cautiously on Tuesday to a US-Iran interim peace deal aimed at reopening the Strait of Hormuz, with Brent crude futures sliding 0.3% to US$82.96 a barrel, marking a three-month low overnight, and further dropping to $78.96 by the end of Tuesday. This follows an initial rally on Monday, where the S&P 500 jumped 1.7%, the Nasdaq Composite surged 3.1%, and the Dow Jones Industrial Average and STOXX 600 closed at record highs. However, by Tuesday, the S&P 500 slipped 0.6%, the Dow rose 0.6% to a new record of 51,999.67, and the Nasdaq composite fell 1.2% due to drops in tech stocks like Nvidia (-2.4%), Broadcom (-4.4%), and Micron Technology (-6.2%).
Optimism regarding the deal’s impact on oil supplies led to a significant drop in prices from over $100 a few weeks prior. Despite initial excitement, analysts like Westpac noted that “Many sticking points, including the fate of Iran’s nuclear programme, were left to be resolved in subsequent negotiations,” and Alyce Andres of Bloomberg’s markets live suggested that markets view the framework as “a promising first step rather than a final resolution.” The Strait of Hormuz, a crucial channel for about a fifth of the world’s oil supplies, is expected to reopen by the week's end, with a signing ceremony scheduled for Friday in Switzerland.
Bond markets saw activity as well, with traders scaling back expectations for Federal Reserve interest rate hikes. The yield on the US 10-year Treasury bond was up 0.8 basis points at 4.475% initially, then eased to 4.45% and eventually fell to 4.43% by Tuesday's end. Two-year yields fell as much as seven basis points to 4.01% before closing around 4.07%. The US dollar index rose 0.1% to 99.75. Gold moved 0.4% higher to US$4,324.32. Concurrently, the Bank of Japan raised its benchmark policy rate to 1%, its highest level since 1995, causing the Nikkei 225 to briefly cross 70,000 for an all-time peak before closing down 0.1% at 69,234.42. The yen was flat against the dollar at 160.31.
