By Lucy Raitano and Gregor Stuart Hunter
London/Singapore — Stocks soared, bonds rallied and the dollar languished on Wednesday, as hopes of a de-escalation in the Iran conflict fuelled the biggest rebound in regional equities in more than three years.
Europe’s Stoxx 600 jumped as much as 2.5% in early trade and was last up 2% — still on track for its biggest daily jump in a year — as travel stocks surged 3.4% and aerospace and defence stocks added 3.9%. German bund yields slipped five basis points.
S&P 500 e-mini futures are pointing to more moderate gains of about 0.5%. Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 4.7% — its biggest one-day increase since November 2022.
On Tuesday, US President Donald Trump said the US could end its military attacks on Iran in two to three weeks.
Markets are trading this narrative that the war could be over, or at least that the US could withdraw. That is creating this positive sentiment in risk assets.
— Evelyne Gomez-Liechti, multi-asset strategist at Mizuho
“Markets are trading this narrative that the war could be over, or at least that the US could withdraw. That is creating this positive sentiment in risk assets,” said Evelyne Gomez-Liechti, multi-asset strategist at Mizuho, though she added she is more inclined to be sceptical about the rally.
“We still have strikes going on. Israel hasn’t really been talking about a ceasefire yet and they are also a very important mix in the equation,” she said. “Iran doesn’t seem like it is willing to negotiate in any case.”
Iran war developments
But the aggressive re-pricing that happened when the war started means it is hard to stand against momentum when the narrative is positive, said Gomez-Liechti.
The rally shrugged off a report in the Wall Street Journal that the UAE may enter the conflict and is lobbying for a UN Security Council Resolution to authorise it to take part in military action to force open the Strait of Hormuz. US secretary of state Marco Rubio said Washington will have to re-examine its relations with Nato after the war ends.
Trump will provide an update on Iran in an address to the nation at 9pm ET on Wednesday (1am GMT on Thursday), White House spokesperson Karoline Leavitt said on X. Stocks on Wall Street soared on Tuesday as traders bet on the potential off-ramp to the war, sending the S&P 500 2.9% higher, while oil markets followed through on earlier declines in Asian trading.
Brent crude futures pared some losses and were last 1% lower at $102.94 a barrel, having earlier moved below the $100 mark in volatile trading. Gold was 1% higher at $4,720/oz.
Data deluge
Elsewhere, the dollar index slipped 0.1% to 99.59, extending its biggest one-day drop in two weeks on Tuesday into a second consecutive day of declines, as traders reassessed the odds that the US Federal Reserve may resume easing policy earlier than thought.
The yield on the US 10-year treasury bond was down 3.4 basis points at 4.277%. Fed funds futures are pricing an implied 17.9% chance that a 25-basis-point cut to interest rates could come at the Fed’s two-day meeting ending on July 29, up from a 7.5% chance a day earlier, according to the CME Group’s FedWatch tool.
Even so, swaps pricing indicates the odds of a cut by April next year are viewed as little better than a coin toss.
Traders are awaiting some key economic data releases for insight into the state of the US economy. ADP employment numbers for March are due later in the session and will serve as a precursor to Friday’s more closely watched non-farm payrolls report. Meanwhile, ISM manufacturing numbers for March are due, with RBC Economics expecting an acceleration to 52.6. US retail sales for February will also hit screens.
On Wednesday, a PMI survey showed eurozone manufacturing growth bounced to its strongest in nearly four years in March as supply chain disruptions inflated growth figures.
The euro was close to a three-week high versus the dollar, up 0.3% at $1.158. Some strong economic data in Asia also boosted regional stocks. South Korean stocks logged their strongest day in a month, as Samsung Electronics surged 13.5% and SK Hynix gained 11.5%, after exports soared 48.3% in March, smashing market expectations.
A separate purchasing managers’ index gauge for South Korea showed the country’s factory activity expanded at the strongest pace in more than four years in March, led by chip demand and new product launches, while corresponding measures of factory activity in China and Taiwan cooled.
In cryptocurrencies, Bitcoin was up 0.4% at $68,469.85 while Ether rose 1.2% to $2,130.41.
Reuters
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