Live updates: Follow the latest news on US-Iran war
US equities futures slipped, but Gulf stocks rallied, and oil prices surged, after conflicting messages from the US and Iran over talks to end the Middle East war reignited geopolitical risk.
Oil prices fell sharply on Monday afternoon, moments after US President Donald Trump said military strikes on Iran's energy infrastructure had been postponed following talks with Tehran that could potentially end the US – Israel war with Iran.
However, Brent rallied past the $100 per barrel mark again after Iran denied talks with the US. The benchmark for two-thirds of global oil rose 2.80 per cent to $102.81 at 4.33pm UAE time after falling 10.9 per cent on Monday.
West Texas Intermediate, which tracks US crude, is trading 4 per cent higher at 91.65 a barrel after closing 10.4 per cent lower in the previous trading session.
"Yesterday’s announcement suggests Trump may have reached his 'TACO [Trump always chicken out] threshold,' with elevated oil prices increasing the risk of renewed inflation pressures, potential rate hikes, and deteriorating domestic polling ahead of the November midterms," said Neal Keane, head of global sales trading at UAE-based ADSS.
The follow-through of the initial positive statement has been limited as "Iran has delivered mixed messaging, while Israel–Iran strikes continued overnight, undermining confidence in any near-term de-escalation", he added.
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Geopolitical headlines from the Middle East are affecting markets across asset classes, with the war, the worst the region has faced, entering its fourth week.
All eyes are fixed on the Strait of Hormuz, which effectively remains shut since February 28, when the US and Israel started bombing Iran. The narrow waterway is the choke-point through which 20 per cent of the world’s oil flows. The closure of the passage has not only caused an energy crisis in Asia and Europe, which are largely reliant on oil and gas supplies from the Middle East, but it is also threatening a severe dent to global economic growth.
There was a sharp reaction across asset classes when Mr Trump surprisingly announced a pause to strike on Iran’s power and energy infrastructure.
However, Tehran has vehemently denied any direct or indirect talks with the Trump administration.
Mr Trump has claimed there are “major points of agreement” with Iran, and that talks with two senior US envoys proceeded late into Sunday evening, which progressed “perfectly”.
The speaker of the Iranian parliament, Mohammad Bagher Ghalibaf, declared Mr Trump’s claim to be “fake news”. However, American news outlet CBS quoted a senior Iranian Foreign Ministry official as saying that Iran has received points from the US through mediators, which are being reviewed.
"Current market dynamics are being dictated by a high-stakes geopolitical standoff that has turned the Strait of Hormuz into a binary event for global markets," Ahmad Assiri, market strategist at trading platform Pepperstone, said.
Mixed equities reaction
Stocks in Asia gave up steep gains following Monday's relief rally on Wall Street, but shares in the Gulf region that have taken a battering since the beginning of the war, rallied during early trade on Tuesday.
The Dubai Financial Market General Index, which climbed as much as 4 per cent during early trading, ended 1.63 per cent higher, helped by gains in property and banking stocks.
Emaar Properties, the biggest developer in the emirate by market capitalisation, advanced about 4 per cent, while its unit Emaar Development added 1.4 per cent.
Dubai’s top bank, Emirates NBD, surged more than 7 per cent, while contracting firm Drake & Scull surged more than 4 per cent.
Abu Dhabi's equities benchmark also rose 1.07 per cent, helped by a 2.8 per cent rise in First Abu Dhabi Bank and a 2.4 per cent jump in Abu Dhabi Islamic Bank.
Main gauges of Saudi Arabia also surged more than 3 per cent, helped by banking stocks, with the kingdom's largest bank by assets, Saudi National Bank, adding 3.13 per cent.
Shares in Qatar, however, fell with the benchmark in Doha slipping 1.37 per cent. Kuwait's main index also retreated 0.33 per cent while the Muscat bourse advanced 1.9 per cent.
Stocks in Asia and beyond lost early momentum and posted modest gains, with Australia's benchmark adding 0.22 per cent, Japan's Nekkei 1.4 per cent, Hong Kong's Hang Seng advancing 2 per cent, while the Shanghai Composite index rose 1.08 per cent.
Futures of the S&P 500, which added 1.15 per cent on Monday, slipped 0.3 per cent.
In Europe, the FTSE 100 Index posted a modest gain of 0.1 per cent, while the CAC 40 Index in Paris was trading flat.
Gold and bitcoin
Gold, which has taken a hammering since the beginning of the war, swung between red and green on Tuesday.
Gold prices, which posted their largest weekly percentage drop in more than 14 years and their largest weekly drop in value since 1983 on Friday, slumped another 0.48 per cent on Tuesday, $4,383.43 per ounce, according to GoldPrice.org.
This is the tenth consecutive session of losses for bullion and its longest daily drop on record.
Gold has hit record highs this year and reached an all-time high of $5,608.35 an ounce in January. Although it has lost some ground, the precious metal is still more than 20 per cent higher since the beginning of this year, after rallying 64 per cent last year.
Bitcoin, which fell 0.8 per cent in Asian trade, also recovered to trade 0.4 per cent higher at $70,955.38. Fears of inflation tied to the Iran war have rattled bitcoin investors. The world’s biggest cryptocurrency has dropped from its six-week high of nearly $76,000 on March 17, as volatility in global markets continues.
