Shares jump, oil skids in Asia on news of Gulf deal

SYDNEY: Share markets surged in Asia on Monday while the dollar slipped and oil prices slid as news the United States had agreed to a peace deal with Iran boosted risk sentiment and promised to ease inflationary pressures globally.

Pakistani Prime Minister Shehbaz ​Sharif said on social media early on Monday that a deal had been struck, while president Donald Trump said the agreement included opening the vital Strait of Hormuz, though without giving details.

Iran said traffic through the strait would be regulated by it and Oman, a potential blow to the rules of free trade and suggesting there might be a toll of some sort on shipping.

“The lack of details especially on freedom of shipping is a concern but not one that should constrain markets today as the surge in risk appetite plays out,” said Sean Callow, a senior FX analyst at ITC Markets.

“The prospect of a sustained fall in energy prices changes the conversation for central banks just ahead of a flurry of policy decisions.”

The news will be a relief for the crowd of central banks meeting this week, easing some of the pressure to tighten policy to head off an energy-driven rise in inflationary expectations.

Markets had already priced in a likely deal but the confirmation was enough to send Brent crude falling 4% to US$83.80 a barrel, well away from its May peak of US$126.41.

US crude slid 4.3% to US$81.23 a barrel, but was still above the US$67 level it traded at before the war began.

S&P 500 futures climbed 0.8%, while Nasdaq futures jumped 1.4% amid a general surge in risk assets. Nikkei futures rose 2% to 68,685, far above Friday’s cash close of 66,020.

Central banks are due to meet in the US, United Kingdom, Japan, Australia, Switzerland, Sweden, Norway and Russia this week, with Japan considered the one likely to lift rates this time.

The Federal Reserve is widely expected to leave rates at 3.50%-3.75% on Wednesday at chair Kevin Warsh’s debut meeting. The statement, economic projections and news conference will be scrutinised for any signals of the Fed dropping its easing bias as officials grow more hawkish on inflation risks.

Investors were quick to trim the chance of a hike this year with December futures edging up 4 ticks. A move as early as October was now priced around 40%.

Treasury futures also rose on hopes that oil prices would now fall sustainably and lessen the upside risks for inflation. Futures for 10-year notes rose 10 ticks.

The drop in yields and general improvement in risk pulled the US dollar broadly lower, with the euro rising 0.4% to US$1.1608. The dollar dipped 0.2% on the yen to 159.93, while sterling rose 0.3% to US$1.3446.

The Bank of England is expected to hold rates at 3.75% on Thursday and through 2026, with policymakers seen in no rush to tighten. The BoE’s vote split and monetary policy report will be of interest.

Top-tier UK data includes May inflation and retail sales, and April employment. Thursday’s Makerfield election will also be watched, as a win for Labour mayor Andy Burnham could set up a leadership contest against prime minister Keir Starmer.

In commodity markets, the drop in yields helped non-interest-paying gold climb 1.4% to US$4,280 an ounce.