Global stocks perk up and oil cools as US, Iran halt hostilities

European stocks and US futures ticked higher ‌on Monday after the US and Iran agreed to halt recent hostilities and renew talks, helping oil prices fall ​after spiking earlier on Monday in the wake of renewed attacks between the two sides.

A return to diplomacy ‌would follow several days of tit-for-tat strikes ‌since an Iranian projectile hit a cargo vessel in the Strait of Hormuz last week, with both sides accusing each other of breaking an interim ceasefire.

Europe’s STOXX 600 index rose 0.1 per cent in morning trading while futures for the US S&P 500 climbed ‌0.7 per cent.

Oil initially climbed on Monday after the US and Iran traded strikes over the weekend, but then cooled to trade ⁠at around its lowest since the conflict began.

Brent crude was last little changed at $72.20 a barrel, down 22 per cent for the month.

“The market can take some relief in the lower oil prices and its impact on the global economy,” said Mohit Kumar, chief European economist at Jefferies.

“Lower oil prices should lead to a diversification trade and growth-sensitive sectors which have suffered in the last few months should outperform.”

Asian markets pared earlier losses, with South Korea’s KOSPI down 0.2 per cent and Japan’s Nikkei up ​0.15 per cent.

Easing oil prices should help reduce some price pressures but measures of inflation have nonetheless jumped ‌in the US and elsewhere, putting pressure on the Federal Reserve to hike rates.

Rising odds of a rate hike have lifted the dollar. The dollar index, which measures the US currency against peers, was at 101.25, just below the one-year high it ⁠touched last week.

The Japanese yen fell slightly to 161.80 per US dollar as fears of another bout of intervention from Tokyo kept the fragile currency from breaking through its lowest in 40 years.

Investors are pricing in at least one Fed hike this year, a sharp reversal ​from expectations of ‌two rate cuts before the conflict began.

BofA strategists anticipate three hikes, a more hawkish view that in part reflects ‌strong US jobs growth.

The rising dollar has weighed on gold, which was down 0.6% at $4,061 per ounce. The yellow metal is set for a 13% decline in the second quarter, its biggest quarterly drop since 2013.

Investors have also been battling concerns that valuations for ‌AI-related firms have become ‌stretched following years of gains.

Futures for the tech-heavy Nasdaq rose ⁠1% on Monday, putting the US index on track for a rebound after it slumped more than ‌4% last week.

The Bank for International Settlements has cautioned over the durability of the current AI investment surge, noting supply bottlenecks and intense competition could spur the kind of overinvestment seen in previous boom-and-bust cycles. Jose ⁠Torres, senior economist at Interactive Brokers, said the rising costs tied to modern infrastructure have firms scrambling for ​cash on their balance sheets and adding to risks if those investments fail to deliver.

“For this reason, traders have gravitated toward the defensive and cyclically oriented areas of the equity space in recent weeks,” Torres said.

Meanwhile European shares were steady on Monday, underpinned by ​gains in technology ⁠stocks, while investors mulled over the durability of an interim ceasefire in ‌the Middle East after the United ‌States and Iran agreed to halt the latest bout of hostilities.

The pan-European STOXX 600 index was steady at 636.43 points by 0800 GMT, with technology stocks leading sectoral gains with a 1.4% rise.

Nagarro soared ‌91% after India’s Persistent offered €81 per share to acquire the AI-led digital engineering firm.

The broader tech sector ⁠rose after last week’s selloff, when it posted its biggest weekly fall since mid-March. Chip stocks such as Soitec jumped 7.2%, STMicroelectronics added 3.6%.

Europe’s exposure to AI stocks is much smaller than the US and Asia, where tech-driven rallies pushed regional benchmarks to record highs several weeks earlier. “For us to start upgrading European stocks, we need to start seeing AI-driven productivity have an impact on European earnings. ​So far, we’re not there yet,” said Florian Ielpo, head of macro and multi-asset ‌portfolio manager at Lombard Odier Investment.

Still, the European tech sector has benefitted from the global AI rally, putting it on track for the biggest quarterly gains on the STOXX 600. It also outperforms the ⁠US S&P 500 tech sector at a time when worries about debt-backed spending concerns weigh on Asian and Wall Street stocks.

Meanwhile, crude prices edged up 0.2% to $72 a barrel as investors assessed shipments through the Strait ​of Hormuz, ‌with a tenuous interim ceasefire prevailing between the US and Iran. The countries traded fire through ‌the weekend before agreeing to halt hostilities and renew talks.

The truce has prompted bullish outlooks from brokerages. J.P. Morgan was the latest to lift its year-end target for European equities.

Focus will be on the European Central ‌Bank’s Sintra conference, where ‌speakers include Federal Reserve Chair Kevin Warsh and ECB ⁠President Christine Lagarde.

Traders are pricing in one more ECB rate hike ‌of 25 basis points later this year, LSEG-compiled data showed.

Reuters