Global Stocks Approach Record Highs as Oil Drops

SadaNews - Global stocks hovered near record levels, while oil declined after officials indicated that the United States was nearing an agreement with Iran to reopen the Strait of Hormuz and resume oil flows. The dollar also weakened.

The "MSCI" index for all countries, the broadest measure of global stocks, rose 0.3%, approaching its highest level ever reached earlier this month. The Japanese "Nikkei" index jumped over 3% to a record high, driven by gains in technology stocks.

These movements came as Brent crude fell by more than 4% to around $99.25 per barrel, the lowest level in over two weeks, amid optimism that the agreement would help resume energy flow through the Strait of Hormuz, a vital artery in the Middle East.

Cheaper oil prices and a decline in inflation expectations supported a rise in Treasury futures as cash trading closed on Monday due to a holiday in the United States.

Markets in Hong Kong and London were also closed due to public holidays. Government bond yields in Japan, Australia, and New Zealand also fell.

Global Stocks Near Record Peaks

Futures for the "S&P 500" index rose by 0.9% to a record level, following the main index on Wall Street gaining for eight consecutive weeks, its longest streak since 2023.

The dollar weakened against all its peers in the G10. Non-yielding assets like gold and silver increased as the likelihood of interest rate cuts grew due to declining inflation.

Senior U.S. officials said on Sunday that the United States and Iran were nearing an agreement that would reopen the Strait of Hormuz, despite ongoing negotiations over key formulations and the possibility that final approvals from both sides could take several days.

However, the Iranian "Tasnim" agency warned that the draft agreement could collapse as the United States obstructs some key provisions, including a demand for Tehran to release its frozen assets.

The increase in risk appetite comes after weeks of stalemate between the United States and Iran, following several previous efforts to reach an agreement.

Since then, global stocks have surged to record highs with optimism that tensions in the Middle East could ease, and renewed enthusiasm for artificial intelligence trading, while rising oil prices and higher inflation have driven bond yields to their highest levels in several years.

Alison Shimada, portfolio manager at "Olspring", told Bloomberg TV: "The market has been looking beyond the Iran war for about a month now." She added, "I am interested in positioning for what happens after the drop in oil prices, as I believe both sides want some kind of negotiated end to the war."

Cautious Optimism Regarding Hormuz

As the United States and Iran inch closer to an agreement, President Donald Trump stated he would not "rush" into finalizing it.

The Washington Post reported that the United States and Iran have developed a framework for a memorandum of understanding that extends the ceasefire for 60 days while both sides work towards a final agreement to end the war permanently. In the meantime, the Strait of Hormuz will be purged of mines and reopened, according to the report.

Nick Twidale, chief market analyst at AT Global Markets, said: "I believe markets are cautiously optimistic about developments in the Middle East, and this is where we see a degree of risk appetite."

He added: "Trump has already shifted from saying 'an agreement is imminent' to 'I am not in a hurry' over the weekend." He continued: "Therefore, I believe the chances of the agreement and its failure are equal, although the start of negotiations is undoubtedly a positive sign."

Focus on Inflation and Interest Rates

Traders remain focused on inflation. They have fully priced in a rate hike from the Federal Reserve by the end of the year, reinforcing expectations that the new Federal Reserve Chair Kevin Warsh will need to act quickly.

Later this week, U.S. personal consumption expenditure data and inflation readings from across Europe will provide clues on price pressures and interest rate trends.

Warsh, who promised to implement the biggest changes in decades within the Federal Reserve, was sworn in to take the position on Friday.

Trump emphasized that he wants Warsh to lead the Federal Reserve independently, in an attempt to soothe investor concerns that he would pressure the new central bank chair on monetary policy decisions.

Strategists expect global bond yields to remain high even if a U.S.-Iran agreement alleviates inflation pressures driven by oil.

Investors are also grappling with concerns that already large public debt burdens will continue to grow, while capital requirements for the surge in artificial intelligence investment add further pressure on global markets.

Unprecedented Action in China

In a separate context, China has launched an unprecedented campaign against illegal cross-border trading to curb capital outflows, threatening severe penalties against known brokers, and ordering the clearance of non-compliant accounts within two years.

The campaign came after local markets closed on Friday when eight regulators issued a joint statement pledging to crack down on these trades, which led Chinese stocks listed in the United States to drop.

Meanwhile, oil's decline on Monday was accompanied by signs that ships began to cross the strait. Thirty-three vessels, including oil tankers, container ships, and other commercial boats, crossed the Strait of Hormuz in the past 24 hours after receiving permission from the "Revolutionary Guard," according to its statement.

ANZ Bank strategists, including David Crowe, wrote in a note to clients: "While any reopening of the Hormuz Strait would be positive for global oil flows, the fluid nature of negotiations and unresolved disputes suggest that oil price volatility may continue for some time after."