Shares surge, oil skids in Asia after Gulf deal flagged

Stock markets rose in Asia, while the dollar retreated and oil prices also fell as the interim peace deal between the United States and Iran promised to ease inflationary pressures globally and reduce the need for high interest rates.

Pakistani Prime Minister Shehbaz ‌Sharif said on social media earlier Monday that an agreement had been reached, while President Donald Trump said the deal included opening the vital Strait of Hormuz but did not provide details.

Trump will meet with Middle Eastern leaders and participate in a working session with Ukrainian President Volodymyr Zelenskiy during the G7 summit in France this week.

Iran has said traffic through the strait will be regulated by itself and Oman, a potential blow to free trade rules and a sign that there could be some kind of fee on shipping.

“The lack of details, particularly around shipping freedom, is a concern, but not something that will constrain markets today given the increase in risk appetite,” said Sean Callow, senior currency analyst at ITC Markets.

“Expectation of a sustained decline in energy prices is altering central banks’ deliberations ahead of a flurry of policy decisions.”

The news will reassure the throng of central bankers meeting this week and ease some of the pressure to tighten policy to head off an energy-fueled rise in inflationary expectations.

Markets had already priced in a possible deal, but the confirmation was enough to send Brent crude back down 4 per cent to US$83.80 ($A118.98) per barrel; this was a long way from the May peak of US$126.41 ($A179.48).

US crude fell 4.7 per cent to US$80.89 (US$A114.85) a barrel, but was still above the US$67 (US$A95) level at which it traded before the war began.

“Assuming the strait does not close again, we see Brent oil futures falling to US$80 billion (b)114 by the end of the year,” said Vivek Dhar, mining and energy analyst at CBA.

“Our forecast implicitly assumes that oil and refined product exports can resume quickly through the Strait of Hormuz, but this view is subject to significant uncertainty due to damage to oil and refinery assets.”

The prospect of cheaper oil will be a boon for Japan, a net energy importer, and the Nikkei rose 3.0 percent. South Korea’s hot market rose 4.3 percent, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5 percent.

In Europe, EUROSTOXX 50 futures and DAX futures increased by 0.2 percent, while FTSE futures increased by 0.3 percent.

While S&P 500 futures rose 0.9 percent, Nasdaq futures rose 1.5 percent, driven by the general rise in risk assets.

Central banks will meet this week in the USA, England, Japan, Australia, Switzerland, Sweden, Norway and Russia, and Japan is considered to be the country that will increase interest rates this time.

The Federal Reserve is expected to leave interest rates in the range of 3.50 percent to 3.75 percent at Governor Kevin Warsh’s first meeting on Wednesday.

The statement, economic forecasts and press conference will be scrutinized for any signs that the Fed is abandoning its expansionary bias as officials become more hawkish on inflation risks.

Investors were quick to write off the chances of a rate hike this year; December futures contracts are up four ticks, while a move in early October is currently priced at around 45 percent.

Treasuries have rebounded on hopes that oil prices will now fall sustainably, reducing upside risks to inflation. The yield on two-year bonds decreased by 6 basis points to 4.02 percent.

The decline in yields and the general improvement in risk sent the US dollar lower overall, while the euro rose 0.4 percent to $1.1608. The dollar decreased by 0.2 percent against the yen to 159.90, and the pound sterling increased by 0.3 percent to $1.3446.

While the Bank of England is expected to keep interest rates at 3.75 percent on Thursday and until 2026, policymakers appear to be in no rush to tighten. The BoE’s vote split and monetary policy report will be interesting.

The UK’s top-level data includes May inflation, retail sales and April employment. Thursday’s Makerfield election will also be watched as a win by Labor Mayor Andy Burnham could set up a leadership contest against Prime Minister Keir Starmer.

A drop in yields in commodity markets helped non-interest-bearing gold rise 1.9 per cent to US$4,300 ($A6,105) an ounce.