Stock markets around the globe surged on Monday following a tentative agreement between the United States and Iran to extend their ceasefire and reopen the vital Strait of Hormuz for global crude oil transportation.
The S&P 500 soared 1.7% early on Monday, buoyed by optimism that this agreement could lead to a lasting resolution to the conflict that had previously driven up prices worldwide. The Dow Jones Industrial Average also climbed 0.9%, while the Nasdaq composite surged 3.1%.
Canada’s main stock market index, the TSX/S&P composite index, gained about one percent by the end of the trading day. The rally in stock markets was supported by a 4.8% drop in the price of a barrel of Brent crude oil to $83.17 US, returning to levels seen in early March.
Although oil prices remain higher than pre-war levels, the recent decline is expected to alleviate pressure on households and businesses that have been grappling with increased costs of essentials due to supply disruptions caused by the conflict with Iran.
While Iran has confirmed the tentative agreement, actual implementation is contingent upon a formal signing scheduled for Friday in Switzerland. Ongoing discussions, particularly concerning Iran’s nuclear program, are anticipated over the next 60 days.
Despite the positive market sentiment, concerns linger about potential setbacks that could derail the agreement. Even if the Strait of Hormuz reopens, it will take time for the energy industry to fully recover. Shipping and insurance firms are likely to seek assurance that the pact will be upheld to ensure the uninterrupted flow of oil and gas supplies.
Heather Exner-Pirot, energy director at the Macdonald-Laurier Institute, cautioned that past attempts at peace deals between the US and Iran have faced obstacles. She emphasized the fragility of the current agreement and warned that any breakdown could reverse the drop in oil prices.
Financial markets globally reacted positively to the news. Companies heavily reliant on fuel, such as United Airlines and Royal Caribbean Group, saw their stocks rise. Additionally, AI industry stocks experienced significant gains, with SpaceX, owned by Elon Musk, showing a 19.6% increase on its second day of trading.
Treasury yields eased amid expectations that lower oil prices could alleviate pressure on central banks to raise interest rates. Overseas, stock indexes in Asia and Europe recorded gains, with Japan’s Nikkei 225 and South Korea’s Kospi posting substantial increases.
Despite the overall optimism in the markets, London’s FTSE 100 experienced a slight decline of 0.4%.
The positive market sentiment was further supported by the anticipation of reduced tensions in the Middle East, as well as the decline in New York’s crude oil futures.
This development marks a significant shift in the global financial landscape, offering hope for economic stability following months of uncertainty and volatility.