Stocks surge, oil climbs as Trump prolongs Iran deadline

Market Reactions and Volatility

Asian stocks experienced a significant rally, oil prices rebounded, and the dollar showed signs of weakness on Tuesday. This shift occurred after U.S. President Donald Trump decided to delay the bombing of Iran’s power grid, which helped ease concerns about a more severe energy crisis.

The market witnessed a rollercoaster week at the beginning, as Trump extended his Saturday ultimatum for Iran to reopen the Strait of Hormuz by 48 hours. He cited productive discussions with unnamed Iranian officials, although Tehran has denied these claims.

Rajeev De Mello, chief investment officer at GAMA Asset Management, commented, “It’s a negotiating tactic… I don’t think that the U.S. administration wants to see oil at $150 because they themselves provoked it.”

Traders responded swiftly to the change in direction on Monday, causing crude futures to drop and shares to rise, while the dollar and government bond yields declined. The momentum from this reaction continued into the Asian trading session on Tuesday, with the MSCI’s broadest index of Asia-Pacific shares outside Japan rising 1.3%, and Australian shares increasing by 0.7%.

Japan’s Nikkei saw a gain of over 2%, reversing most of Monday’s 3.5% loss. Meanwhile, U.S. futures remained relatively stable after ending Monday’s cash session higher.

Oil prices managed to increase slightly on Tuesday, following a 10% decline in the previous session. Brent crude futures rose 1% to $100.94 per barrel, while U.S. crude increased by 1.9% to $89.84.

Despite these gains, market movements remained highly volatile due to ongoing conflicts in the Middle East and lingering concerns about prolonged high energy prices.

Chris Weston, head of research at Pepperstone, noted, “Markets are not out of the woods.” He added, “Price action could remain choppy into Friday’s revised deadline… The key question is whether participants see this as a genuine extension that brings a deal closer, or simply a delay that prolongs uncertainty.”

Interest Rate Expectations and Currency Movements

Yields on U.S. Treasuries stabilized on Tuesday after a sharp decrease overnight, aligning with a decline in global bond yields as investors reduced their bets on aggressive interest rate hikes by major central banks this year.

The two-year yield remained nearly unchanged at 3.8498%, having dropped more than 6 basis points in the previous session. The benchmark 10-year yield was last recorded at 4.3400%.

Although traders have eliminated the small chance of a U.S. Federal Reserve rate hike this year, they still anticipate rates will remain unchanged. The Bank of England is now expected to raise rates only twice this year, down from four previously, and market expectations for hikes from the European Central Bank have also been reduced.

Kit Juckes, head of FX strategy at Societe Generale, stated, “Unless the Strait (of Hormuz) is reopened very quickly, we are still more likely than not to see higher interest rates and a meaningful increase in oil importers’ costs in the coming weeks.”

In the currency markets, the U.S. dollar faced challenges after falling on Monday, as increased risk appetite reduced demand for the safe haven currency. The euro was trading at $1.1603, having risen 0.4% overnight, while sterling held near its two-week high and was last at $1.3420.

Against the yen, the dollar was up 0.04% at 158.54.

Data released on Tuesday revealed that Japan’s core consumer inflation rate reached 1.6% in February, dipping below the Bank of Japan’s 2% target for the first time in nearly four years. This development complicates the bank’s efforts to justify further interest rate hikes.

Spot gold increased by 0.6% to $4,431.65 an ounce.