Stocks Inch Higher, Dollar Holds Firm as Ceasefire Boosts Market Sentiment
UK Global Markets: A ceasefire boosts confidence as stocks rise and the dollar remains stable.
TOKYO (Reuters) – A ceasefire between Israel and Iran gave investors the all-clear to return to riskier assets and set aside short-term concerns about an energy shock, which caused stocks to slightly rise and crude oil to hold close to multi-week lows on Wednesday.
As lower oil prices lessened the potential of an inflation rise for bonds, two-year U.S. Treasury rates dropped to 1-1/2-month lows, and the dollar hovered near an almost four-year low versus the euro.
Although Israel warns it would retaliate strongly against Iranian missile strikes that followed U.S. President Donald Trump’s announcement of an end to the conflict, the tenuous truce has held up so far.
Furthermore, a preliminary U.S. intelligence assessment contradicted Trump’s earlier remarks that Iran’s nuclear program had been “obliterated” by stating that U.S. airstrikes merely caused a few-month delay in Iran’s nuclear capabilities, rather than destroying it.
Early trading saw a 0.2% increase in Europe’s Stoxx 600 index, but no change in S&P 500 or Nasdaq futures.
At their best level since March 20, mainland Chinese blue chips gained 1.44%, Hong Kong’s Hang Seng surged 1.3%, and Japan’s Nikkei rallied 0.4%.
Overnight, an MSCI index of world stocks pushed to a record high and then stayed steady.
“If the still tense situation in the Middle East does indeed continue to calm down, the stock markets could have a pleasant July ahead of them, in line with their typical seasonal pattern,” Metzler analysts in Frankfurt said.
“This would result in new all-time highs in the U.S., possibly further fuelled by renewed expectations of interest rate cuts by the Fed.”
Expectations of rate reduction by the Federal Reserve this year were reinforced by a set of U.S. macroeconomic data that was issued overnight, including consumer confidence, which indicated perhaps weaker than anticipated economic growth in the world’s largest oil consumer.
Brent crude rebounded slightly after plunging as much as $14.58 during the previous two days, rising 2% to $68.43 per barrel. At $65.60 a barrel, U.S. West Texas Intermediate crude was up as much as it had been previously.
ING analysts noted in a letter to clients that “there remains a stronger demand for immediate supply, and while concerns regarding Middle Eastern supply have diminished for now, they have not entirely disappeared.”
At 3.7848%, the two-year U.S. Treasury yield was the lowest since May 8.
The U.S. dollar index, which compares the euro to six major rivals, was only little higher at 98.079, while the euro fell 0.1% to $1.1594, but around the overnight high of $1.1641, a level not seen since October 2021.
The price of gold increased slightly to around $3,328 an ounce. Investor concerns are still dominated by U.S. monetary policy, aside from geopolitics.
The U.S. central bank will be evaluating potential rate reduction during the summer, when higher tariffs could start to drive up inflation, Federal Reserve Chair Jerome Powell stated on Tuesday.
According to the CME FedWatch tool, markets are still pricing in a roughly 19% likelihood that the Fed would lower rates by a quarter point in July.
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