Oil prices climbed on Tuesday and stock markets wavered as investor optimism over a potential US-Iran peace deal was tempered by new US military strikes in the Middle East. Brent crude futures surged more than 2 percent in Asian trade, reaching $98.21 a barrel, while US West Texas Intermediate crude edged up slightly from Monday's last traded price but remained 4.9 percent lower than Friday's close. Monday saw no settlement due to the US Memorial Day holiday.
US Strikes and Diplomatic Efforts
US forces conducted strikes in southern Iran, described as defensive actions, while Iran's top negotiator and foreign minister were in Doha for talks with Qatar's prime minister regarding a potential agreement with Washington to end the three-month-old conflict. US Secretary of State Marco Rubio stated that negotiating a deal with Iran could take a few days, dampening hopes for an immediate resolution.
Market Reactions and Analyst Views
Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed skepticism about the deal's proximity, questioning the specifics and the timeline for reopening the Strait of Hormuz. He noted that the market wants to believe the war will end soon, as its continuation poses significant risks to the global economy, which has been relying on inventory drawdowns that are not sustainable.
Stock markets showed mixed results. MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.67 percent, while Japan's Nikkei fell 0.14 percent. Nasdaq futures trimmed earlier gains to trade 0.86 percent higher, and S&P 500 futures rose 0.66 percent. In Europe, EUROSTOXX 50 futures eased 0.16 percent, FTSE futures added 0.2 percent, and DAX futures lost 0.26 percent.
Regional Stock Performance
In Hong Kong, stocks rose as gains in the chipmaking sector helped offset concerns over Beijing's crackdown on illegal cross-border trading. The Hang Seng Index increased by 0.5 percent, while on the mainland, China's CSI300 blue-chip index dipped 0.3 percent.
Currency and Bond Markets
The US dollar steadied on Tuesday amid renewed safe-haven demand, though it remained below a six-week peak hit last week. The euro fell 0.1 percent to $1.1633, the sterling eased 0.13 percent to $1.3488, and the dollar was flat against the yen at 158.94. Bond markets were largely steady after a recent rout, with the two-year US Treasury note yield falling nearly 7 basis points to 4.0573 percent and the 10-year yield dropping more than 6 basis points to 4.5083 percent.
Eric Robertsen, Standard Chartered's head of global research and chief strategist, noted that periodic yield retracements are likely when geopolitical risks subside, but inflation and fiscal risks are expected to be more sustained. He highlighted that commodity supply dislocations will take months to resolve, and fiscal support measures will likely lead to a sustained deterioration in sovereign balance sheets, requiring increased borrowing in a higher funding cost environment.
Elsewhere, spot gold fell 1 percent to $4,525.18 an ounce.
