(April 20): Crude oil jumped and the dollar strengthened as a relief rally driven by hopes of easing Iran tensions unravelled, giving way to renewed caution after a weekend escalation between Washington and Tehran.
Global crude benchmark Brent jumped 5.6% to about US$95.50 a barrel, recouping some of Friday’s sharp losses after prices slumped on Iran’s declaration that the Strait of Hormuz was “completely open”. Treasuries fell across the curve at the open on concerns higher oil prices will stoke inflation. The dollar strengthened after weakening for the past three weeks on hopes for an end to the war.
Most of Monday’s moves reversed back to last week’s levels, when optimism over an end to the war and the resumption of flows through the Strait of Hormuz lifted sentiment. Asian shares rose 0.4% on hopes that possible renewed talks may ease tensions. S&P 500 futures fell 0.6% after the underlying index closed at a record on Friday following news the key waterway had reopened.
Renewed tensions and the closure of the Strait of Hormuz risk reintroducing uncertainty into markets after equities had largely unwound war-driven risk premiums. Global stocks had climbed to a record high last week, and the dollar gave up much of its gains since late February as expectations for de-escalation strengthened, giving traders some optimism that an off-ramp may be found and negotiations will continue.
“It does seem like moving in same circles to a certain degree,” Kerry Craig, a global market strategist at JPMorgan Asset Management, said on Bloomberg TV. Markets “are looking through what could be the end of or at least the beginning of the end of this conflict”.
Iran has signalled it may not join a second round of talks this week while the US maintains a naval blockade, hardening a standoff that had appeared to thaw on Friday and sparked a broad rally in stocks. The US also said it intercepted and seized an Iranian-flagged vessel in the Gulf of Oman.
See also: Traders brace for renewed turmoil on Hormuz standoff
Iran warned over the weekend that ships approaching the waterway “under any pretext” would be treated as violating the ceasefire, with its Revolutionary Guard Corps firing on commercial vessels and leaving tanker operators waiting on Tehran.
President Donald Trump, who on Friday said a deal with Iran was all but agreed, threatened by Sunday morning to destroy every power plant and bridge in Iran if negotiations fail. The whiplash underscores how much of last week’s rally was built on hope rather than resolution.
In other corners of the market, gold fell 1% to US$4,780 an ounce and silver declined 1.1%. Bitcoin dropped 0.5%. European gas futures surged as much as 11% on Monday as Tehran on Saturday again closed the chokepoint, after it said a US blockade of Iran-linked ships violated a ceasefire agreement that ends Tuesday.
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“Although there were various developments over the weekend, things didn’t move in a direction that would cause a major breakdown in ceasefire talks, as had been feared,” said Yugo Tsuboi, chief strategist at Daiwa Securities Co. “So for now the market reaction has been calm.”
The S&P 500 notched a third straight week of gains above 3% and is set for its biggest monthly advance since 2020. Gauges in Taiwan, Singapore and China’s CSI 300 Index had all reversed losses that came after the US and Israel attacked Iran in late February.
Oil is where the gap between market pricing and physical reality has been widest. The market plunge Friday priced in normalisation, but shipping routes remain disrupted, tanker rates are elevated and inventories depleted — conditions analysts say will take weeks to work through.
“I still think we are getting to or already at peak uncertainty though agree there is hedging risk,” said Billy Leung, an investment strategist at Global X Management. “The selloffs are happening on thin volume which tells me it is positioning not conviction.”
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.6% as of 10.10am Tokyo time
- Hang Seng futures rose 1.2%
- Nikkei 225 futures (OSE) rose 0.3%
- Japan’s Topix rose 0.5%
- Australia’s S&P/ASX 200 was little changed
- Euro Stoxx 50 futures fell 1.2%
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Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to US$1.1753
- The Japanese yen fell 0.2% to 158.98 per dollar
- The offshore yuan was little changed at 6.8226 per dollar
- The Australian dollar fell 0.3% to US$0.7149
Cryptocurrencies
- Bitcoin fell 0.5% to US$74,296.35
- Ether was little changed at US$2,282.18
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.27%
- Japan’s 10-year yield declined 1.5 basis points to 2.405%
- Australia’s 10-year yield declined five basis points to 4.94%
Commodities
- West Texas Intermediate crude rose 6.3% to US$89.13 a barrel
- Spot gold fell 0.9% to US$4,788.40 an ounce
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