Stocks gain, dollar retreats on hopes for end to war
Asian stocks rose while oil prices and the safe-haven dollar fell on Tuesday after the United States said it was continuing to reach a deal with Tehran despite blocking Iranian ports after peace talks collapsed at the weekend.
Sources told Reuters that both sides had left the door open to dialogue and a US official said progress was being made towards reaching an agreement.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.0 percent in early Asian trading, while Japan’s Nikkei and South Korea’s KOSPI rose more than 2.0 percent.
Nasdaq futures rose 0.13 percent, S&P 500 futures were flat after an overnight rise on Wall Street, EUROSTOXX 50 futures gained 0.63 percent and DAX futures gained 0.77 percent.
“Markets are trading in hope, not solutions,” said Charu Chanana, chief investment strategist at Saxo.
“The failed weekend talks didn’t lead to a deal, but they also didn’t close the door on diplomacy, and that’s enough for stocks to keep rising for now.”
US President Donald Trump said on Monday that Iran “called this morning” and that “they want to make a deal.” Reuters could not immediately confirm the claim.
Meanwhile, the US military began to blockade Iranian ports in a move aimed at putting pressure on Tehran.
Trump said Washington would block Iranian ships and all ships paying such tolls, and that any Iranian “fast attack” ships approaching the blockade would be eliminated.
“The United States actually played this trump card. To me, it’s important because they gave Iran back the responsibility of opening the Strait without having to put their boots on the ground,” said Tony Sycamore, a market analyst at IG.
“It has now forced the Iranians to go back to the drawing board.”
Oil prices fell as expectations for a solution outpaced concerns about supply disruptions, with Brent crude futures down 2.7 per cent at US$96.66 ($A136.15) a barrel. US crude oil futures fell 3.0 per cent to US$96.13 ($A135.40) per barrel.
The dollar fell to a six-week low of 98.328 against a range of currencies on Tuesday as rising risk sentiment dampened demand for the world reserve currency.
This left the euro trading 0.05 per cent higher at $US1.1764 ($A1.6570), while sterling rose to a more than six-week high of $US1.3514 ($A1.9035).
“The United States and Iran are on track to reach an agreement,” said Joseph Capurso, a strategist at the Commonwealth Bank of Australia.
“But markets still face a worsening global economic outlook, and I think there is a high risk that equity markets, credit markets and the like will fall again, which will likely push the US dollar higher against all currencies.”
U.S. Treasury yields were little changed; While the two-year return was at 3.7722 percent, the 10-year benchmark return remained at 4.2854 percent.
The inflationary pulse from the sharp rise in energy prices has led investors to brace for the possibility that a number of major central banks may move to raise interest rates; This marks a sharp reversal from pre-war expectations of interest rate cuts or long-term stagnation.
On the other hand, spot gold rose 0.7 per cent to US$4,771.81 (A$A6,721.14) per ounce.
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