Global stock markets surged on Monday, driven by growing optimism about a possible resolution to the Iran conflict. Meanwhile, oil prices and the US dollar retreated as investors reacted to the evolving situation, although uncertainty over the timing of any deal and the reopening of the Strait of Hormuz limited the extent of gains.
The nearly three-month-long Middle East war has significantly impacted energy prices and altered global inflation and interest rate forecasts. This is largely due to Tehran’s effective closure of the crucial shipping lane, which accounts for roughly 20 percent of worldwide oil and liquefied natural gas trade.
In a notable development, US President Donald Trump stated on Sunday that he had instructed negotiators not to rush into an agreement with Iran. This tempered earlier enthusiasm after suggestions that Washington and Tehran had broadly agreed on a framework to reopen the strategic waterway.
Market sentiment remained highly reactive to fluctuating news rather than concrete progress. Chris Weston, head of research at Pepperstone, remarked that the market’s tone consistently leaned toward some form of resolution, with investors showing patience for a definitive deadline.
Despite Iran’s foreign ministry indicating that a deal was not imminent, equity markets maintained a risk-on stance. The pan-European STOXX 600 index climbed about 1 percent, while US futures pointed upward, with Nasdaq futures rising 1.4 percent and S&P 500 futures gaining 1 percent. Trading volumes were expected to be light due to public holidays in several key markets.
In Asia, Japan’s Nikkei surged approximately 3 percent, surpassing 65,000 for the first time, and Taiwan’s benchmark index reached a record high, buoyed by strong performances in technology and artificial intelligence sectors.
Oil prices, a major factor influencing global markets this year, dropped sharply to two-week lows. Brent crude fell nearly 5 percent to $98.45 per barrel, while US West Texas Intermediate slipped to $91.67. Analysts caution that prices are likely to remain elevated even if a deal is finalized, citing persistent supply chain disruptions. Barclays maintained its Brent crude forecast at $100 for 2026 but noted that risks remain skewed to the upside.
Safe-haven currencies weakened as investors reduced risk exposure. The euro gained 0.3 percent to $1.1640, and the Japanese yen strengthened slightly against the dollar. Bond markets also rallied, with German 10-year yields dropping to their lowest since early April and Italian yields easing further amid increased demand for government debt.
Meanwhile, fluctuating energy prices have prompted investors to revise global interest rate expectations. Markets now anticipate a US Federal Reserve rate hike in early 2027, a significant shift from earlier predictions of rate cuts this year. The 30-year US Treasury yield briefly reached its highest level since 2007 last week before easing, reflecting ongoing concerns about geopolitical and fiscal risks.
Economists warn that the Federal Reserve faces a challenging balancing act, as rising energy costs exert upward pressure on inflation, while slowing economic growth and weakening consumer sentiment dampen demand.
