Stocks rise, oil falls as Trump prolongs Iran deadline

Market Volatility and Geopolitical Tensions

Asian stocks experienced a significant rally, oil prices saw some recovery, and the U.S. dollar faced uncertainty on Tuesday following a notable development involving U.S. President Donald Trump. The president postponed the bombing of Iran’s power grid, which helped ease fears of a more severe energy crisis. This decision sent ripples through global markets, creating a mixed response from investors.

The week started with intense market activity after Trump extended his ultimatum for Iran to reopen the Strait of Hormuz by five days. He cited productive discussions with unnamed Iranian officials, although Tehran has denied these claims. Analysts suggest that this move is likely a strategic negotiation tactic rather than an immediate threat.

Rajeev De Mello, chief investment officer at GAMA Asset Management, commented on the situation, stating, “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.” This insight highlights the complex interplay between geopolitical actions and market reactions.

Market Reactions and Performance

Traders responded swiftly to the reversal, leading to a drop in crude futures and a surge in share prices. The dollar and government bond yields also declined as investors adjusted their positions. These movements continued into the Asian trading session on Tuesday, with the MSCI’s broadest index of Asia-Pacific shares outside Japan rising 1.3%. Australian shares also gained 0.7%, while Japan’s Nikkei advanced over 2%, reversing most of Monday’s 3.5% decline.

U.S. futures remained relatively stable after ending Monday’s cash session higher. Meanwhile, oil prices showed some improvement on Tuesday after a 10% drop in the previous session. Brent crude futures rose 1% to $100.94 a barrel, and U.S. crude increased 1.9% to $89.84. Despite this, the market remains volatile due to ongoing tensions in the Middle East and concerns about prolonged high energy prices.

Chris Weston, head of research at Pepperstone, noted, “Markets are not out of the woods.” He emphasized that price action could remain unpredictable until the revised deadline on Friday, with the key question being whether the extension is seen as genuine or merely a delay that prolongs uncertainty.

Interest Rate Expectations and Central Bank Policies

Yields on U.S. Treasuries stabilized on Tuesday after a sharp decline the previous day, reflecting a broader trend of reduced expectations for aggressive interest rate hikes by major central banks. The two-year yield was little changed at 3.8498%, having fallen over 6 basis points in the prior session. The benchmark 10-year yield stood at 4.3400%.

While traders have largely ruled out the possibility 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 European Central Bank hikes have also been tempered.

Kit Juckes, head of FX strategy at Societe Generale, warned, “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.”

Currency Movements and Economic Data

In the currency markets, the U.S. dollar faced pressure after falling on Monday, as improved risk sentiment reduced demand for the safe haven currency. The euro reached $1.1603, up 0.4% overnight, while sterling held near its two-week high at $1.3420. Against the yen, the dollar was slightly higher at 158.54.

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

Spot gold rose 0.6% to $4,431.65 an ounce, reflecting continued investor interest in safe-haven assets amid ongoing uncertainties.