(June 19): Wall Street staged a comeback that saw stocks joining bonds higher after a peace deal between the US and Iran spurred optimism that a revival of the Strait of Hormuz will ease inflation risks.
The S&P 500 rose 1.1%. Trading volume on American exchanges spiked to a record amid an estimated US$7.5 trillion options expiry. A gauge of chipmakers rallied 6.4%. Treasury yields fell after a jump driven by worries the Federal Reserve would need to raise rates. US oil edged lower.
As the interim peace deal took effect, shipping started returning to Hormuz, with the US declaring an end to its blockade and a complex negotiating period over Tehran’s nuclear programme beginning in earnest. President Donald Trump posted on Truth Social that “oil is flowing.”
US Vice President JD Vance downplayed concerns Iran could eventually impose tolls on traffic through the vital energy waterway. A closure of the strait amid the war had lifted fuel prices, raising the risk of a global economic crisis.
If the deal holds, analysts say that could take substantial pressure off of energy costs and inflation.
“The progress toward releasing oil supply from the Persian Gulf has supported equity prices,” said Ian Lyngen at BMO Capital Markets. “Lower energy costs have also eased forward inflationary concerns and led to meaningful declines in longer-dated Treasury yields.”
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Federal Reserve chairman Kevin Warsh this week vowed to restore price stability after officials left rates unchanged and signaled growing support for interest-rate hikes.
Should lower energy costs continue to filter through to inflation data, policymakers may ultimately find sufficient justification to keep rates unchanged for an extended period rather than hiking, according to Fawad Razaqzada at Forex.com.
“My view remains that inflation should moderate gradually over the coming months, and this might allow the Fed to maintain current policy settings rather than implement fresh tightening,” he said.
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Meantime, the Bank of England held rates at 3.75%, saying the recent drop in oil prices was “encouraging,” even as two of the nine policymakers voted for an immediate quarter-point hike over concerns of persistent inflation.
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