Wall Street jumps, oil tumbles Trump talks possible end to war, ASX set to surge
Stan Choe
There is relief in financial markets after President Donald Trump said the United States is talking with Iran about a possible end to the war. Oil prices are falling and stock prices are rising on Wall Street after significant losses elsewhere in the world before Trump’s announcement.
The price of a barrel of Brent crude fell 9.4 percent to $101.62 from around $120 last week after Trump said the United States and Iran had had productive talks over the past two days “concerning a complete and total resolution of our hostilities in the Middle East.” The S&P 500 rose 1.2 percent for its best day since the war began.
However, market movements are still temporary and Iran has denied that such talks are taking place. S&P 500 reduced its gain, which reached 2.2 percent in the morning hours.
The Australian share market is poised to rise with futures at 4.53pm AEDT pointing to a 160 point, or 1.9 per cent, jump at the open. The ASX lost 0.7 per cent on Monday. The Australian dollar was trading at 70.13¢ at 5.06am AEDT.
Over the weekend, Trump threatened to “destroy” Iran’s power plants if the Strait of Hormuz was not opened within 48 hours. The narrow waterway off the coast of Iran has become a sore point for Trump and the economy as its near closure has prevented oil tankers from leaving the Persian Gulf to supply customers around the world.
Trump said he postponed attacks on power plants in Iran for five days so talks could continue. Shortly thereafter, Iranian state media quoted Iranian officials as rejecting any talks as Trump described and said Trump backed down “following a firm warning from Iran.”
The price of Brent crude oil fell to $96 immediately after Trump announced the postponement, but it quickly recovered most of this loss. Comparative US crude oil showed a similar reaction; It immediately fell to US$84 per barrel, then rose again to above US$92 and then fell to US$89.30.
Due to uncertainty about how long the war will last, financial markets have experienced wild fluctuations, both up and down, since the start of the war. The fear is that a long-term disruption could keep so much oil and gas out of global markets that it would create a debilitating wave of inflation for the global economy.
The wild swings of the past few weeks are similar to, but not as dramatic as, those experienced last year when Trump shocked the global economy on “Independence Day.” Many of his worldwide tariffs have been less severe than he initially threatened, and the back-and-forth in negotiations has led to historic twists and turns.
Still, the overriding reaction in financial markets on Monday was one of relief. The Dow Jones Industrial Average was up 670 points, or 1.5 percent, as of 1:01 p.m. Eastern time after rising nearly 1,135 points in the morning. The Nasdaq composite rose 1.3 percent.
Stock indices in Europe immediately turned from losses to gains after Trump’s statement and then held. While France’s CAC 40 index increased by 0.8 percent, Germany’s DAX index decreased by 1.2 percent.
That compares with sharp declines in Asian stock markets, which ended trading before Trump made his announcement. South Korea’s Kospi index fell 6.5 percent, Japan’s Nikkei 225 index fell 3.5 percent and Hong Kong’s Hang Seng index fell 3.5 percent.
Following Trump’s statement, treasury yields in the bond market also declined. High Treasury yields and bond market disruption were key factors Trump cited when he backed off his initial threats of global tariffs a year ago. These moves have led critics to claim that Trump is always shying away or using a “TACO” if financial markets show enough pain.
Like oil prices, Treasury yields still remain well above where they were before the war began, even after Monday’s decline. The concern is that higher oil prices could prevent the Federal Reserve and other central banks from continuing to cut interest rates, which would give a boost to the global economy and investment prices.
The yield on the 10-year Treasury note fell to 4.36 percent from 4.39 percent at the end of Friday. But it remains solidly above the pre-war level of 3.97 percent.
Monday’s rally on Wall Street was so widespread that four out of every five stocks in the S&P 500 rose.
Companies with large fuel bills that would benefit from any easing in oil prices were at the top. Norwegian Cruise Line Holdings was up 7.3 percent, United Airlines was up 3.9 percent and American Airlines was up 3.8 percent. Yet all are still down for the year so far.
Shares of smaller companies also led the market, with the Russell 2000 index covering small stocks rising 2.3 percent. Last week it fell 10 percent below the record; This is such a sharp decline that professional traders call it a “correction.”
The S&P 500, the main measure of the strength of the U.S. stock market, is down 6 percent from its all-time high set earlier this year.
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