Shares surge, oil skids in Asia on Gulf deal
Market Reactions to US-Iran Peace Deal
By Wayne Cole
SYDNEY, June 15 (Reuters) - Share markets surged in Asia on Monday while the dollar slipped and oil prices tumbled as a tentative peace deal between the United States and Iran promised to ease inflationary pressures globally and lessen the need for higher interest rates.
Details of the Gulf Agreement
Pakistani Prime Minister Shehbaz Sharif said on social media early on Monday that a deal had been struck, while President Donald Trump said the agreement included opening the vital Strait of Hormuz, though without giving details.
Trump will meet with Middle Eastern leaders and attend a working session with Ukrainian President Volodymyr Zelenskiy during a G7 summit in France this week.
Iran said traffic through the strait would be regulated by it and Oman, a potential blow to the rules of free trade and suggesting there might be a toll of some sort on shipping.
Market Analyst Perspectives
"The lack of details especially on freedom of shipping is a concern but not one that should constrain markets today as the surge in risk appetite plays out," said Sean Callow, a senior FX analyst at ITC Markets.
"The prospect of a sustained fall in energy prices changes the conversation for central banks just ahead of a flurry of policy decisions."
Impact on Central Banks and Oil Prices
The news will be a relief for the crowd of central banks meeting this week, easing some of the pressure to tighten policy to head off an energy-driven rise in inflationary expectations.
Markets had already priced in a likely deal but the confirmation was enough to send Brent crude falling 4% to $83.80 a barrel, well away from its May peak of $126.41. U.S. crude slid 4.7% to $80.89 a barrel, but was still above the $67 level it traded at before the war began. [O/R]
Analyst Forecasts for Oil
"We see Brent oil futures falling to $80 by the end of the year assuming the strait does not close again," said Vivek Dhar, a mining and energy analyst at CBA.
"Our forecast implicitly assumes that oil and refined product exports can resume quickly through the Strait of Hormuz, but this view carries considerable uncertainty tied to the damage to oil and refinery assets."
Regional Market Responses
The prospect of cheaper oil will be a boon to Japan which is a net importer of energy, and the Nikkei climbed 3.0%. South Korea's red-hot market gained 4.3%, while MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.5%.
Relief for Central Banks
RELIEF FOR CENTRAL BANKS
In Europe, EUROSTOXX 50 futures and DAX futures both rose 0.2%, while FTSE futures added 0.3%.
S&P 500 futures climbed 0.9%, while Nasdaq futures jumped 1.5% amid a general surge in risk assets.
Upcoming Central Bank Meetings
Central banks are due to meet in the U.S., UK, Japan, Australia, Switzerland, Sweden, Norway and Russia this week, with Japan considered the one likely to lift rates this time.
The Federal Reserve is widely expected to leave rates at 3.50%-3.75% on Wednesday at Chair Kevin Warsh's debut meeting. The statement, economic projections and news conference will be scrutinised for any signals of the Fed dropping its easing bias as officials grow more hawkish on inflation risks.
Investors were quick to trim the chance of a hike this year with December futures edging up four ticks while a move as early as October is now priced around 45%.
Bond and Currency Market Movements
Treasuries rallied on hopes that oil prices would now fall sustainably and lessen the upside risks for inflation. Yields on 2-year notes dropped 6 basis points to 4.02%.
The drop in yields and general improvement in risk pulled the U.S. dollar broadly lower, with the euro rising 0.4% to $1.1608. The dollar dipped 0.2% on the yen to 159.90, while sterling rose 0.3% to $1.3446.
Bank of England and UK Economic Data
The Bank of England is expected to hold rates at 3.75% on Thursday and through 2026, with policymakers seen in no rush to tighten. The BoE's vote split and monetary policy report will be of interest.
Top-tier UK data includes May inflation and retail sales, and April employment. Thursday's Makerfield election will also be watched, as a win for Labour Mayor Andy Burnham could set up a leadership contest against Prime Minister Keir Starmer.
Commodities Market Update
In commodity markets, the drop in yields helped non-interest-paying gold climb 1.9% to $4,300 an ounce. [GOL/]
(Reporting by Wayne Cole; Editing by Edmund Klamann)
