By Ronnie Harui
Asian markets breathed a sigh of a relief Wednesday after President Trump announced a cease-fire with Iran, buoying stocks and sending oil lower on hopes that an end to the conflict is in sight.
Equities and government bonds rose in morning trade, while oil pulled back sharply as worries eased about an commodity-driven inflationary shock that would weigh on economic growth--especially in Asia, a massive energy importer.
President Trump said he agreed to suspend attacks on Iran for two weeks subject to the immediate reopening of the Strait of Hormuz, a key waterway through which one-fifth of the world's oil is transported. The effective blockage of the lane has disrupted supplies of other key commodities too, like fertilizers, and has been a major sticking point in resolution efforts.
Iran's Supreme National Security Council agreed to allow "safe passage" of ships through the strait, and said that negotiations with the U.S. will start Friday.
Still, analysts retained a note of caution on calling victory just yet.
The developments are clearly constructive, and markets can cheer the news that diplomacy has gained a foothold, Saxo Markets' Charu Chanana said. "But the bigger test is whether this evolves into a durable agreement rather than just a fragile pause."
Lower oil prices are unambiguously positive, said Josh Gilbert at eToro, easing pressure on consumers, taking some heat out of inflation expectations, and removing one of the biggest headwinds that has challenged equities over the past weeks.
Oil slipped back below $100 a barrel in morning trade, with front-month West Texas Intermediate crude futures down 14% at $97.59 and front-month Brent falling 12.5% to $95.65, ICE data showed.
"Ultimately, it's important that investors don't get ahead of themselves," Gilbert warned. "We've seen Trump set and extend deadlines multiple times before, and a two-week window is not a permanent resolution."
For now, appetite for risk assets is back.
Market participants have been desperate for anything resembling good news for weeks, and even more desperate to see concrete steps towards de-escalation, Pepperstone's Michael Brown said.
"Now that we seem able to put a tick in both of those boxes, participants are unsurprisingly willing to significantly take up risk levels once more," the senior research strategist said.
Japan's Nikkei Stock Average gained 4.4% early on, while South Korea's Kospi added 5.1%, buoyed by sharp rises in chip stocks. Australia's S&P/ASX 200 benchmark index was up 2.5%.
Government bonds in Asia rose in terms of prices, which move inversely to yields. The yield on 10-year Japanese government bonds fell 4.5 basis points to 2.360%, the yield on 10-year Australian sovereign securities declined 10 basis points to 4.8880%, and the yield on 10-year New Zealand government debt dropped 9 basis points to 4.6330%.
Most Asian currencies strengthened against the greenback, which had been buoyed by the risk-off mood that has dominated markets throughout the conflict.
The dollar fell 0.6% to 158.68 yen, dropped 1.1% to 1,479.70 won, and slipped 1.0% to 32.14 baht, LSEG data showed. The Australian dollar climbed 1.1% to $0.7050 and the New Zealand dollar gained 1.0% to $0.5786.
Bitcoin was last 3.2% higher and firmly above the closely watched $70,000 level. Gold and silver prices bounced back, with most-active futures gaining about 4% and 6% respectively.
For the rally to last, markets will need to see tangible progress on a resolution to the war, analysts say.
If shipping lanes reopen and oil normalizes, that would be a turning point for global markets, said Gilbert at eToro. "If the two weeks pass without a deal, expect a sharp and unforgiving reversal of this relief rally."
Write to Ronnie Harui at ronnie.harui@wsj.com
(END) Dow Jones Newswires
04-07-26 2141ET
