Stocks Rally into Weekend on Peace Deal Hopes – Dow up 0.7%
US stocks finished the week on a positive note on Friday as investors embraced a more optimistic tone surrounding developments in the Middle East. Sentiment improved after President Trump again stated that a peace agreement with Iran could be signed on Sunday, easing concerns over a prolonged conflict. A successful SpaceX launch also added to the positive mood, helping Wall Street extend its gains into the close.
The Dow Jones rose 0.70% to finish at 51,202, while the S&P 500 gained 0.50% to close at 7,431. The Nasdaq added 0.31%, ending the session at 25,888 as risk appetite continued to improve.
Despite the stronger tone in equities, Treasury yields moved higher as traders began positioning ahead of this week’s Federal Reserve meeting. The US 2-year yield climbed 1.9 basis points to 4.081%, while the benchmark 10-year yield rose 1.8 basis points to 4.479%. The US Dollar Index drifted slightly lower, falling 0.05% to 99.81, as markets looked ahead to a busy week of central bank events.
Commodity markets reacted strongly to the prospect of a de-escalation in tensions. Oil prices fell sharply as traders unwound some of the geopolitical risk premium that had built up in recent weeks, with Brent crude dropping 3.37% to $87.33 per barrel and WTI crude falling 3.23% to $84.88. Gold traded relatively quietly throughout the session and ultimately edged 0.12% higher to close at $4,218.77 an ounce.
Traders Looking for More Oil Downside on Strait Opening
News that the Strait of Hormuz will reopen on Friday after the US and Iran sign a peace agreement has already seen oil prices dive this morning, and now traders are looking for more potential downside in the coming days. WTI has already dropped over 15% from last week’s high and is now sitting on a long-term support level on the daily chart just under $81 a barrel, with a break lower in the coming sessions likely to open the way for a move down to the 200-day moving average, now sitting just below the $74 level. The risks to further moves south now come from exactly how much this news has already been priced into the market over the last few days, how long it will take for the opening of the strait to translate into oil flow returning to normal levels, and, of course, the danger that the peace deal could fall over and hostilities renew. However, for now, any rallies will likely attract sellers, with the initial resistance level around the $88 mark.
Markets to Drive Higher in Trading Today
The week begins with a relatively quiet economic calendar before attention turns to several major central bank meetings and key data releases later in the week. However, news that the US and Iran have reached a deal shortly after the market open today has seen sentiment improve further, with equity markets pushing higher and oil prices extending their decline. While investors will be encouraged by signs that tensions may be easing, the details of any agreement will be closely scrutinised. For now, the prospect of a lasting ceasefire is supporting risk sentiment and could provide further upside for markets as the day progresses. The only events of note on the fundamental side of things are scheduled speeches from Buba President Joachim Nagel and ECB President Christine Lagarde, both in the London session.
