Global Stocks Rise Amid Bet on Diplomatic Path for Iran War

SadaNews - Global stocks rose and oil prices fell, as diplomatic efforts from Washington bolstered cautious optimism about the potential easing of the conflict in the Middle East, calming fears of a prolonged disruption in supply.

The price of Brent crude fell by 4% to $100.30 a barrel, while a regional index for Asian stocks rose by 1.9%, amid expectations that de-escalation in the Iran war could ease inflationary pressures and reduce the need for monetary tightening. Some optimism faded as European markets approached opening. Earlier, the price of Brent had dipped to $97.15 a barrel, while Asian stocks surged by up to 2.4%.

Futures contracts for U.S. stock indices increased by 0.6%, while contracts indicate European stocks may gain around 1% at market open.

The optimism was supported by a 15-point U.S. plan aimed at ending the war with Iran, according to sources familiar with the matter. Earlier, Israeli Channel 12 reported that Washington is seeking a one-month truce.

The Focus Remains on the Strait of Hormuz

Despite this, the focus remains on the Strait of Hormuz, the vital artery for oil flows from the Middle East, which remains effectively closed to shipping.

Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, stated: "Crude remains at the forefront of the market affected by news."

She added, "Reports suggesting that a potential 30-day truce might be in the works reduce the severity of worst-case pricing scenarios and alleviate concerns regarding demand destruction. The indications of a possible exit from the war also dampen some of the risk premium in the market."

Financial markets have experienced sharp volatility since the conflict erupted in late February, as news-driven movements have led traders to exit positions.

Moreover, the extreme volatility in oil prices complicates risk assessment, as rising commodity prices intensify inflation fears and increase the likelihood that policymakers will keep borrowing costs elevated or even tighten them further.

The Urgency to End the Conflict Grows

The U.S. plans highlight the increasing urgency within the Trump administration to end the conflict, amid its rising economic cost.

President Donald Trump has pushed for negotiations with Iran to halt the fighting, but those efforts have been clouded by uncertainty over the negotiation framework, Iranian participants, and how any agreement would be structured.

The details of the 15-point proposal remain unclear, although Trump has publicly hinted that any agreement must include a ban on Iran acquiring a nuclear weapon or enriching fissile material for civilian purposes.

Qian Su, head of investments for the Asia region at Indosuez Wealth Management, stated that it is difficult to take Trump's words at face value. She added, "We are taking a defensive stance, not chasing the news, and waiting for clearer indicators of a real resolution on the ground before we invest at a better time."

Garfield Reynolds, head of Bloomberg Markets Live in Asia, noted that "investors will focus on the calm U.S. rhetoric regarding the possibility of peace negotiations, pushing stocks and bonds higher while pressuring oil futures."

He added, "However, this strategy may be subject to risks given that the actions of the three main parties in the conflict, the U.S., Iran, and Israel, indicate very little actual de-escalation."

Markets Intersecting with Monetary Policy

In other sectors of the market, gold rose for the second day, trading near $4545 an ounce, while Bitcoin climbed to around $71,000.

Attention is also focused on bond markets, where Federal Reserve officials Michael Barr and Austin Goolsbee indicated that inflation remains a major concern for policymakers.

However, the decline in oil prices has alleviated fears about prices and reduced the justification for the Federal Reserve to move towards raising interest rates.

Two-year Treasury yields, sensitive to monetary policy, fell one basis point to 3.87%.

Oliver Livingstone, currency and interest rate strategist for the G10 at Bank of America, stated, "It's difficult to draw a clear signal from this news."

He added, "Investors who believe a partial retreat in oil prices is forthcoming should invest in interest rates, especially in real yields and medium-term."

Continued Tension Despite Talk of Deescalation

Despite reports indicating a potential de-escalation, the conflict continued to flare. Kuwaiti authorities stated on Wednesday that they were dealing with a fire after drones targeted a fuel tank at the airport, according to the country's aviation authority. Israel also announced a wave of strikes on targets across Tehran.

The Trump administration ordered the deployment of about 2,000 soldiers from the 82nd Airborne Division to the region, according to a source familiar with the matter, while the White House was considering options to ease Iran's grip on the Strait of Hormuz, the vital waterway at the center of the conflict.

Iran has begun imposing transit fees on some commercial ships passing through the Strait of Hormuz, according to sources familiar with the matter, in the latest sign of its control over the most important maritime energy route. Nonetheless, Tehran stated that "non-hostile" foreign ships are allowed to pass on its terms.

Matt Maley at Miller Tabak said, "It all comes down to reopening the Strait of Hormuz." He added, "So, if we hear about good progress being made in negotiations by the end of this week, it won't be enough if the strait remains nearly closed."

Risks Facing Credit Markets

Aside from geopolitical risks, Maley also pointed out that the issues facing the private credit market do not ease, so ignoring these issues "is not a good idea."

Ares Management and Apollo Global Management, two major players in private credit, have prevented investors from withdrawing even half of the funds they wanted to recover from their funds, signaling rising pressures in a market valued at $1.8 trillion.

According to Thierry Wiseman at Macquarie Group, any optimism about ending the war in the Middle East, without the U.S. first attempting to secure and control the Strait of Hormuz, or without first gaining greater leverage in negotiations with Iran, remains misplaced.

He stated, "The longer oil prices remain elevated, the more central banks feel compelled to suggest that they will tighten policy."