Stan Choe
Relief is flowing through financial markets after President Donald Trump said the United States has talked with Iran about a possible end to their war. Oil prices are easing, and stock prices are jumping on Wall Street following severe losses taken elsewhere in the world before Trump’s announcement.
The price for a barrel of Brent crude fell 9.4 per cent to $US101.62, down from nearly $US120 at one point last week, after Trump said the United States and Iran held productive talks the last two days “regarding a complete and total resolution of our hostilities in the Middle East.” The S&P 500 rose 1.2 per cent toward its best day since the war began.
The market’s moves remain tentative, though, and Iran denied such talks took place. The S&P 500 trimmed its gain, which had reached 2.2 per cent in the morning.
The Australian sharemarket is set to surge, with futures at 4.53am AEDT pointing to a jump of 160 points, or 1.9 per cent, at the open. The ASX lost 0.7 per cent on Monday. The Australian dollar was trading at US70.13¢ at 5.06am AEDT.
Over the weekend, Trump had threatened to “obliterate” Iran’s power plants if it doesn’t open up the Strait of Hormuz within 48 hours. The narrow waterway off Iran’s coast has become a sore point for Trump and the economy because its near-closure has prevented oil tankers from leaving the Persian Gulf to supply customers around the world.
Trump said that he is postponing attacks on Iranian power plants for five days to allow talks to continue. Quickly afterward, Iranian state media cited Iranian officials as denying any talks like Trump described and said Trump had backed down “following Iran’s firm warning.”
The price of Brent crude fell as low as $US96 immediately after Trump announced the postponement, but it quickly recovered a chunk of that loss. Benchmark US crude had a similar reaction, immediately dropping toward $US84 per barrel before yo-yoing back above $US92 and then falling back to $US89.30.
Financial markets have had vicious swings, both up and down, since the war began because of uncertainty about how long it may last. The fear is that a long-term disruption could keep so much oil and natural gas off global markets that it creates a debilitating wave of inflation for the global economy.
The frenzied swings of the past few weeks are similar to, but not as dramatic as, those that hit last year when Trump shocked the global economy on “Liberation Day.” Many of his worldwide tariffs ended up being milder than he initially threatened, and the back-and-forth in negotiations led to historic moves up and down.
Still, Monday’s overriding reaction in financial markets was one of relief. The Dow Jones Industrial Average was up 670 points, or 1.5 per cent, as of 1:01 p.m. Eastern time, after soaring nearly 1,135 points during the morning. The Nasdaq composite jumped 1.3 per cent.
In Europe, stock indexes immediately flipped from losses to gains following Trump’s announcement and then held onto them. France’s CAC 40 rose 0.8 per cent, and Germany’s DAX returned 1.2 per cent.
That compares with sharp drops for Asian stock markets, which finished trading before Trump made his announcement. South Korea’s Kospi careened 6.5 per cent lower, Japan’s Nikkei 225 dropped 3.5 per cent and Hong Kong’s Hang Seng fell 3.5 per cent.
Treasury yields also eased in the bond market following Trump’s announcement. High Treasury yields and disruption in the bond market were main factors that Trump named a year ago when he backed off his initial threats for global tariffs. The moves caused critics to allege Trump always chickens out, or “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 drop. The worry is that high oil prices could keep the Federal Reserve and other central banks from resuming their cuts to interest rates, which would give the global economy and prices for investments a boost.
The yield on the 10-year Treasury fell to 4.36 per cent from 4.39 per cent late Friday. But it remains solidly above its 3.97 per cent level from just before the war.
On Wall Street, Monday’s rally was so widespread that four out of every five stocks rose within the S&P 500.
Toward the head were companies with big fuel bills that will benefit from any easing of oil prices. Norwegian Cruise Line Holdings surged 7.3 per cent, while United Airlines climbed 3.9 per cent, and American Airlines rose 3.8 per cent. All, though, are still down for the year so far.
Stocks of smaller companies also led the market, and the Russell 2000 index of smaller stocks jumped 2.3 per cent. It had dropped last week to 10 per cent below its record, a sharp enough fall that professional investors call it a “correction.”
The S&P 500, which is the main measure of the US stock market’s strength, pulled back within 6 per cent of its own all-time high set early this year.
AP
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