Global markets rallied on Monday while oil prices fell nearly 7% as investors welcomed signs that the US and Iran had stepped back from further military confrontation and were discussing a possible resumption of negotiations on an interim ceasefire deal.
Investor sentiment also received a boost from the spectacular stock market debut of Chinese memory chipmaker CXMT. Shares of the company surged 466% on their first day of trading on Shanghai's technology board, making it China's most valuable listed company with an estimated market capitalisation of 3.3 trillion yuan (nearly $490 billion).
Oil prices plunge as geopolitical tensions ease
The Pentagon did not respond to questions about the reported pause in attacks on Iranian coastal areas and infrastructure after nearly two weeks of escalating fighting triggered by Iran's attacks on ships transiting the Strait of Hormuz.
Markets, however, reacted positively. Brent crude, the international benchmark, fell 6.8% to $85.49 a barrel, while US benchmark crude dropped 7% to $83.06 per barrel.
“Oil's sharp retreat at the Monday open did more than knock a few dollars off the barrel. It loosened the geopolitical knot that had been tightening around equities, currencies, bonds and central banks for most of July,” Stephen Innes of SPI Asset Management said in a commentary.
Global equities advance across Asia, Europe and US futures
European markets opened higher, with Germany's DAX rising 1.6% to 25,497.42, France's CAC 40 gaining 0.8% to 8,436.94 and Britain's FTSE 100 advancing 0.5% to 10,784.00.
US futures also pointed to a stronger opening, with futures for both the S&P 500 and the Dow Jones Industrial Average climbing 1%.
Asian markets mostly posted gains. Japan's Nikkei 225 rose 0.5% to 64,931.19, South Korea's Kospi gained 1% to 6,755.75, Hong Kong's Hang Seng added 1% to 25,207.18 and Shanghai's Composite index climbed 1.2% to 3,858.25. Australia's S&P/ASX 200 surged 1.4% to 8,894.00, while India's Sensex rose 1.1%. Taiwan's Taiex was the only major regional index to edge lower, slipping 0.1%.
On Friday, the S&P 500 was little changed, rising less than 0.1% and recording its second consecutive weekly decline for the first time since March. The Dow Jones Industrial Average gained 0.5%, while the Nasdaq Composite fell 0.6%, dragged lower by declines in Micron Technology and Broadcom.
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Inflation, Fed policy and AI spending remain in focus
Despite the easing in oil prices, investors remain concerned that higher energy costs and fresh tariffs announced last week by US President Donald Trump's administration could keep inflation elevated, complicating the Federal Reserve's interest rate outlook.
The Fed is meeting this week, although rising inflation has reduced expectations of an interest-rate cut anytime soon. Wall Street has increasingly shifted towards the possibility of a rate hike to curb price pressures.
Higher fuel costs continue to weigh on household budgets. According to AAA, the national average price of gasoline stands at $4.11 per gallon. While lower than levels seen earlier this spring during the expansion of the Iran conflict, it remains nearly a dollar higher than a year ago.
"Oil is the fastest-moving tax in the global economy. When crude rises sharply, consumers feel it at the fuel pump, airlines and transport companies feel it in their operating costs, manufacturers feel it in their logistics, and central banks begin worrying that the initial supply shock will spill over into broader inflation expectations,” Innes said.
Investors are also closely tracking corporate earnings to assess whether the massive investments in artificial intelligence by companies such as Alphabet and Nvidia will generate enough profits to justify their soaring market valuations, which have driven markets higher this year.
In currency markets, the US dollar slipped to 163.56 Japanese yen from 163.64 yen, while the euro edged up to $1.1399 from $1.1398.
