Wall Street jumps on peace deal, SpaceX rises again; ASX set to fall on RBA day
Stan Choe
Updated ,first published
While stock markets recovered around the world, oil prices also fell after the United States and Iran reached a tentative agreement to extend the ceasefire and reopen the Strait of Hormuz to restart the global flow of crude oil.
The S&P 500 index rose 1.7 percent on hopes that the announcement of the Iran-U.S. deal this time would mean a long-term solution to the dispute that has worsened inflation around the world. The Dow Jones Industrial Average rose 468 points, or 0.9 percent, to a record high, while the Nasdaq composite rose 3.1 percent.
The Australian share market is set to fall sharply at 6.17am (AEST) with futures pointing to a loss of 124 points, or 1.4 per cent, at the open. The ASX rose 1.3 per cent on Monday following the announcement of the US-Iran deal. While the Federal Reserve announced its interest rate decision this afternoon, economists tipped the central bank to hold off.
US stocks rose after the barrel price of Brent crude fell 4.8 percent to $83.17, returning to its early March level. While this is above the roughly $70 it cost before the war, it is still lower than the $100-plus it cost a few weeks ago. The hope is that lower oil prices will ease the pressure on households and businesses forced to pay higher prices for everything from food to fuel to fertilizer because of the war with Iran.
Iran has ratified the agreement, but it does not include a final agreement on issues such as Iran’s nuclear program. Negotiations on this issue are expected to continue for the next 60 days, leaving room for disruptions that could disrupt the agreement. Even if the Strait of Hormuz fully reopens on Friday as expected, it will likely take months for the energy sector to return to full speed.
However, for now, there has been relief in financial markets around the world.
On Wall Street, stocks of companies with big fuel bills were instant winners. United Airlines flew 3.9 percent higher and cruise operator Royal Caribbean Group was up 6.6 percent.
Shares of companies ensnared in the artificial intelligence industry also jumped. These stocks have yo-yoed in recent weeks, going from soaring to record highs to precipitously falling. The concern is whether such stocks are rising too high, too fast, due to the AI craze, and whether their shaky moves sometimes change direction by the hour.
Micron Technology rose 10.8 percent and Advanced Micro Devices rose 7 percent. Nvidia’s 3.5 percent rise has been the strongest force pushing the S&P 500 upward, as the AI chip company is Wall Street’s most valuable company, giving it more weight in the index than others.
Elon Musk’s rocket company SpaceX, which also owns AI company xAI, rose 19.6 percent in its second day of trading on Wall Street. Its successful debut on Nasdaq showed that there is still plenty of demand for AI among investors. The market has given SpaceX a total value of more than US$2.1 trillion ($3 trillion); making it larger than Exxon Mobil, Bank of America and Coca-Cola combined.
In the bond market, Treasury yields have fallen in hopes that lower oil prices will remove pressure on central banks to raise interest rates.
The yield on the 10-year Treasury note fell from 4.48 percent to 4.47 percent at the end of Friday.
Last week, the European Central Bank became the first major bank in the world to raise interest rates due to the war with Iran. High interest rates can limit inflation, but they also slow economies and drive down the prices of all kinds of investments, including stocks and cryptocurrencies. They have particularly hit investments seen as the most expensive, and some critics have characterized the AI industry as a bubble in which investments have ballooned too much.
The Fed will announce its final decision on interest rates later this week, and it will be the first decision under its new chairman, Kevin Warsh. Investors are almost certain the Fed will keep its key interest rate steady after its two-day meeting on Wednesday.
Investors were increasing bets that the Fed might have to raise interest rates this year as inflation rises rapidly and the U.S. labor market remains solid. But the interim agreement between the US and Iran means traders are betting only 57 percent on the chance of a rate hike this year, down from 71 percent a week ago, according to data from CME Group.
Elsewhere on Wall Street, Roku fell 1.9 percent after the company announced that Lachlan Murdcoh’s Fox Corp was acquiring the streaming pioneer in a cash-and-stock deal worth about $22 billion.
Roku’s shares were already up 20 percent on Friday, when media reports emerged about a deal that would give Fox access to the Roku channel, first-party data and more than 100 million global streaming households. Fox’s shares fell 16.8 percent.
Overall, the S&P 500 rose 122.83 points to 7,554.29. The Dow Jones Industrial Average rose 468.77 to 51,671.03, and the Nasdaq composite index rose 795.10 to 26,683.94.
In foreign stock markets, indices in Asia and Europe started to rise. Japan’s Nikkei 225 index jumped 5 percent, making one of the world’s biggest gains and finishing with a record.
“This is great news,” said Takashi Hiroki, chief strategist at Monex. “Buying by foreign investors is driving the market in anticipation of easing tensions related to the situation in the Middle East.”
South Korea’s Kospi rose further, up 5.2 percent, thanks in part to ongoing rallies for AI winners like Samsung Electronics.
The London FTSE 100 Index was an outlier, losing 0.4 percent.
