Wall Street surged to record territories and oil prices plunged by 10 per cent after Iran declared the Strait of Hormuz was "completely open”, spurring hope that the regional conflict is coming to an end.
Iranian Foreign Minister Abbas Araghchi said the strait, through which a fifth of the world's oil and gas typically passes, will be open for "the remaining period” of the 10-day ceasefire between Israel and Lebanon which began on Friday.
Vessels are to follow a co-ordinated route "announced by the Ports and Maritime Organisation of Iran”, he added.
That gave investors further hope after US President Donald Trump said the war with Iran could end “fairly soon”. The truce between the two sides is to end on April 22.
Still, there was a fair bit of confusion: while Washington and Tehran both said the strait was open, Iranian state media later said that would be void if the US continued its blockade.
After the reopening of the strait during the Israel-Lebanon truce, investors "rapidly repriced” geopolitical risk, while also triggering a "decisive breakout” from US equities, analysts at Puerto Rico-based Birling Capital Advisors said.
"The announcement reduced concerns about immediate supply disruptions, triggering a broad risk-on shift across asset classes … lower oil prices are now acting as a disinflationary tailwind, improving margin outlooks and supporting earnings visibility,” they said.
"Markets are increasingly pricing a contained geopolitical scenario, reinforced by signals from Donald Trump that the conflict could move towards resolution.”
On Wall Street, the benchmark S&P 500 settled 1.2 per cent higher and the tech-heavy Nasdaq Composite added about 1.5 per cent for their third straight record close. The Dow Jones Industrial Average gained 1.8 per cent for its best finish since late February.
In Europe, major indices rallied at the close, with London's FTSE 100 edging up 0.73 per cent. The gauge was down earlier in the day as mining and utilities stocks tanked. Frankfurt's DAX added nearly 2.3 per cent, while Paris's CAC 40 settled almost 2 per cent higher.
Earlier in Asia, where stock markets closed before the reopening of the strait was announced, equities closed lower on profit-taking as investors were still wary of the geopolitical conflict.
The Shanghai Composite inched down 0.1 per cent, while Hong Kong's Hang Seng index gave up about 0.9 per cent. Tokyo's Nikkei retreated from this week's highs, also on profit-taking, and settled 1.75 per cent lower.
"We believe a near-term resolution to the conflict supports a return towards our constructive macro and markets outlook, but we remain of the view that oil prices will be elevated for several more months as the supply shock works its way through downstream markets,” said Julia Hermann, a global market strategist at New York Life Investment Management.
Oil and gold
Oil prices swung to losses on Friday, capping a wild week that mostly continued the uncertainty in the sector that has been roiled by the regional conflict.
Brent, the benchmark for two thirds of the world’s oil, slipped 9.07 per cent to finish at $90.38 a barrel, after having dropped to high-$80s levels. West Texas Intermediate, the gauge for US crude, plunged 11.45 per cent to close at $83.85 a barrel.
Crude prices were on pace for a weekly gain before Tehran's announcement, but instead logged losses: from last week's close, Brent and WTI are on pace for a decline of about 5 per cent and 13 per cent, respectively.
Since the US-Iran war began on February 28, both Brent and WTI have surged by about a quarter. In the year to date, they have gained nearly 50 per cent. The gauges, which have risen to as much as $103 a barrel this week, have been extremely volatile since the beginning of the war, with Brent surging about 60 per cent in March, its biggest monthly gain on record.
Brent lost more than 11 per cent and WTI plunged by more than 14 per cent in a single day last week, when Washington and Tehran agreed to a two-week ceasefire only hours before Mr Trump's deadline.
“Crude oil prices have stabilised as the geopolitical risk premium diminishes, with the market increasingly pricing in a diplomatic solution … while Donald Trump appears set to make compromises to reach an exit from his war,” said Samer Hasn, a senior market analyst at XS.com.
Prices, however, surged on Monday, after Pakistan-brokered talks in Islamabad failed to find a diplomatic solution.
The conflict tipped the Middle East into its worst geopolitical crisis in decades. The hostilities that began with Israel and the US launching co-ordinated strikes on Iran, and Tehran attacking civil and military targets of its Arab neighbours has delivered an unprecedented supply shock to global energy markets.
Gold, meanwhile, jumped a one-month high following the Strait of Hormuz's reopening, on a weaker dollar and US Treasury yields.
The precious metal, widely considered a safe-haven asset, added nearly 1 per cent to $4,831.23
