Stocks soared, bonds rallied and the dollar wallowed 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 surged 2.3% in early trade – on track for its biggest daily jump in a year – as travel stocks rose about 4% and aerospace and defence stocks were 3.6% higher. German bund yields fell 7 basis points .
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 4.7%, snapping a four-day losing streak to log its biggest one-day increase since November 2022, after President Donald Trump said the U.S. could end its military attacks on Iran in two to three weeks.
“They’re still quite far apart in terms of what a truce means, or what peace means, but the market is embracing the fact that they are talking,” said Rodrigo Catril, currency strategist at National Australia Bank in Sydney.
“That’s a positive sign, at least in terms of signalling or willingness to end the conflict,” he said, speaking on a podcast. Whether a compromise can be reached remains to be seen. “While this is all happening, attacks are continuing from both sides.”
Robust economic data for March powered a rebound in Korean and Japanese shares. South Korea’s Kospi led gains, rising as much as 9.1%, while the Nikkei 225 surged 5.2%, and Taiwanese shares gained 4.6% at the highs of the day.
IRAN WAR DEVELOPMENTS
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. U.S. Secretary of State Marco Rubio said Washington will have to reexamine its relations with NATO after the war ends.
Trump will provide an update on Iran in an address to the nation at 9 p.m. ET on Wednesday (0100 GMT on Thursday), White House spokeswoman Karoline Leavitt said on X.
S&P 500 e-mini futures were up 0.7% and Nasdaq futures gained 1.1% after the post. In early European trades, pan-region futures rose 2.6%, German DAX futures were up 2.4%, and FTSE futures added 1.1%.
Stocks on Wall Street soared on Tuesday as traders bet on the potential off-ramp to the war, sending the S&P 500 % higher, while oil markets followed through on earlier declines in Asian trading. Brent crude futures moved 4.1% lower to $99.76 a barrel.
ASIA’S EXPORTS BOOM
South Korean stocks logged their strongest day in a month as Samsung Electronics surged 13.5% and SK Hynix gained 11.5% higher, after exports soared 48.3% in March, smashing market expectations.
South Korean export growth was “driven by favourable price effects and strong global chip demand,” analysts from ING wrote in a research report. “Supply constraints appear to be having a limited impact on key exports so far.”
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.
“Despite rising price pressures, the Iran War has so far had little impact on factory activity,” Capital Economics said of the Chinese data.
In Japan, business sentiment among large manufacturers improved in the three months to March, a sign that increasing economic uncertainty from the Middle East conflict has yet to hit morale.
“Global tech has very direct linkages to global GDP, demand, irrespective of how powerful or how strong this AI trend is going to be,” said William Yuen, investment director at Invesco in Hong Kong.
“But then in the next 12 months or 24 months, if global growth slows down, inevitably, there will be an impact on global demand for technology.”
RATE EXPECTATIONS
The U.S. dollar index slipped 0.1% to 99.62, 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 Federal Reserve may resume easing policy earlier than thought.
The yield on the U.S. 10-year Treasury bond was down 4.8 basis points at 4.261%.
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.
In cryptocurrencies, bitcoin was up 1.3% at $69,064.01 while ether rose 2.1% to $2,150.93.
(REUTERS)
