 "Markets rebound on ceasefire hope as investors weigh Iran response and Fed signals")
Global shares rallied and the dollar extended declines on Tuesday after U.S. President Donald Trump said Iran and Israel had agreed to a ceasefire, sending oil prices into a deep dive as concerns over supply disruptions ebbed.
Writing on his Truth Social site, Trump implied a ceasefire would go into effect in 12 hours, after which the war would be considered “ended”.
There was no immediate comment yet from Israel. While an Iranian official earlier confirmed that Tehran had agreed to a ceasefire, the country’s foreign minister said there would be no cessation of hostilities unless Israel stopped its attacks.
Oil prices fell over 3%, having already slid 9% on Monday when Iran made a token retaliation against a U.S. base, which came to nothing and signalled it was done for now.
With the immediate threat to the vital Strait of Hormuz shipping lane seemingly over, U.S. crude futures fell another 3.4% to $66.15 per barrel, the lowest since June 11.
“With markets now viewing the escalation risk as over, market attention is likely to shift towards the looming tariff deadline in two weeks time,” said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities.
“Our sense is that the quicker than expected resolution to the Middle East conflict leads to expectations for a swifter resolution on tariffs and trade deals.”
Impact Shorts
View AllRisk assets rallied, with S&P 500 futures up 0.6% and Nasdaq futures 0.9% higher. EUROSTOXX 50 futures jumped 1.3% and FTSE futures rose 0.4%.
The MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.8% while Japan’s Nikkei rallied 1.4%.
Two sources told Reuters that Japan’s tariff negotiator Ryosei Akazawa is arranging his seventh visit to the United States for as early as June 26, aiming to end tariffs that are hurting Japan’s economy.
China’s blue chips rose 1%, while Hong Kong’s Hang Seng index gained 1.7%.
News of the ceasefire saw the dollar extend an overnight retreat and slip 0.3% to 145.70 yen, having come off a six-week high of 148 yen overnight. The euro rose 0.2% to $1.1594 on Tuesday, having gained 0.5% overnight.
The yen and euro benefited from the slide in oil prices as both the EU and Japan rely heavily on imports of oil and liquefied natural gas, while the United States is a net exporter.
“The market was so well hedged against a major tail-risk event to play out…the actions and the dialogue we’ve seen highlight that the tail risks have not and will highly unlikely materialise,” said Chris Weston, head of Research at Pepperstone.
Ten-year Treasury yields were 2 basis points higher at 4.35%, having declined 5 bps overnight after Federal Reserve Vice Chair for Supervision Michelle Bowman said the time to cut interest rates was getting nearer as risks to the job market may be on the rise.
Fed Chair Jerome Powell will have his own chance to comment when appearing before Congress later on Tuesday and, so far, has been more cautious about a near-term easing.
Markets still only imply around a 22% chance the Fed will cut at its next meeting on July 30.
The risk-on mood saw gold prices ease 0.6% to $3,346 an ounce.
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