Global markets rose on Monday after a peace agreement between the US and Iran eased geopolitical risks, lowered energy-price concerns and shifted expectations over the future path of interest rates. Asian markets led the positive sentiment earlier in the day, with Japan’s Nikkei 225 climbing 5%, Hong Kong’s Hang Seng rising 0.5% and South Korea’s Kospi surging 5.2%, as investors welcomed the prospect of lower energy costs and reduced geopolitical uncertainty. Chinese shares also traded higher, while regional currencies strengthened against the dollar as risk appetite improved.
Impact on Oil Prices and Precious Metals
The agreement, aimed at ending the conflict and reopening the Strait of Hormuz, one of the world’s most important routes for oil and liquefied natural gas shipments, improved risk appetite across asset classes. Oil prices declined after the deal reduced concerns over prolonged disruption to global energy flows, while equities advanced as investors priced in lower inflation risks and a more supportive outlook for monetary policy. Precious metals also joined the rally. Spot gold rose 2.25% to $4,313 an ounce, while silver gained more than 3.7% to around $70.2 an ounce.
Market Reaction and Volatility
The market reaction came after weeks of volatility triggered by the conflict, which began in late February with US and Israeli strikes on Iran. Tehran’s decision to block the Strait of Hormuz in retaliation had pushed energy prices sharply higher, raising concerns over global supply chains, inflation and central bank policy. The disruption had added pressure to consumer prices, particularly in energy-importing economies. In the US, inflation climbed to 4.2%, its highest level in three years, strengthening expectations that the Federal Reserve and other major central banks could keep interest rates elevated or consider further hikes.
Shift in Interest Rate Expectations
However, the peace agreement rapidly reversed some of those expectations. The probability that the Fed will raise interest rates in December fell to 48%, down from 69% last week. Lower oil prices are expected to ease pressure on headline inflation, giving central banks more room to avoid additional tightening. This helped support equities, risk-sensitive assets and precious metals at the same time. Gold, which had lost more than 19% since February amid rising yields, a stronger dollar and inflation-driven rate concerns, benefited from the shift in expectations. As a non-yielding asset, bullion tends to come under pressure when interest rates rise, but gains when rate-hike expectations decline.
Analyst Outlook
Analysts said the agreement marked a turning point for global markets by reducing one of the largest geopolitical risks facing investors. Still, they warned that the sustainability of the rally would depend on whether oil prices remain lower, inflation continues to moderate and central banks adopt a less restrictive tone in the coming months.
