Brent crude oil dropped 2.7% to around $109 a barrel after Trump said plans for a strike on Iran were called off following appeals from Persian Gulf allies, adding that “serious negotiations are now taking place.”
Treasuries fell slightly after whipsawing in the previous session on concerns elevated oil prices will stoke inflation. The Treasury 10-year yield gained one basis point to 4.60%.
The optimism lifted Asian shares with gains in Japan and Australia. Equity-index futures tied to Wall Street benchmarks fluctuated in Asian trading, after the underlying gauges rebounded from session lows in choppy trading. A gauge of semiconductor stocks fell 2.5%.
Developments around a potential breakthrough in the standoff over the Strait of Hormuz have driven sharp swings in energy markets. With the waterway still effectively closed to commercial shipping and tanker traffic reduced to a trickle, investors are bracing for continued turbulence across oil and global equities.
“The volatility will clearly continue until the Iran situation is resolved,” said veteran Wall Street strategist Louis Navellier. “If in a month from now, flows haven’t resumed through the Strait of Hormuz, energy prices will almost certainly be higher, fueling higher inflation and higher interest rates.”Earlier Monday, both the US and Iran said they’d rejected fresh offers as insufficient to secure a deal. The White House said a proposal delivered by Tehran through mediators Sunday lacked meaningful improvement, Axios reported. Iran, meanwhile, indicated US demands are unacceptable.Trump has repeatedly threatened renewed military action against Iran without following through. There was no immediate confirmation from Tehran of renewed talks. Trump said the US was prepared to attack if an acceptable deal wasn’t reached but didn’t set a deadline.
Elsewhere, the US on Monday issued a new waiver allowing the sale of Russian crude oil and petroleum products that are already loaded on tankers, days after the previous one lapsed. Treasury Secretary Scott Bessent said in a post on X that the new general license “will help stabilize the physical crude market.”
In other corners of the market, a Bloomberg gauge of the dollar held its losses from the prior session. Gold edged up to about $4,580 an ounce as the prospect of a US-Iran ceasefire deal eased some inflationary concerns that have weighed on bullion.
The yen was steady against the dollar after the country’s economy grew much faster than expected at the start of the year, supporting the case for further Bank of Japan interest-rate hikes.
Higher oil prices and inflation concerns have rattled bond markets, sending yields from Japan to the US sharply higher. Thirty-year Treasury yields hovered near the highest levels in almost three years as investors weighed fears of persistent inflation against optimism that the US and Iran may eventually reach a deal to end hostilities.
“An environment characterized by elevated oil prices, persistent inflation concerns, geopolitical uncertainty, and rising term premium could create the conditions for a self-reinforcing move higher in yields,” said Noureldeen AlHammoury, chief market strategist at Equiti Group.
Meanwhile in stocks, Monday’s decline marked the first back-to-back drop for the S&P 500 this month, with rising government bond yields, hotter-than-expected inflation readings and elevated oil prices all combining to dent investors’ appetite.
“Strong equity markets (outside of Friday’s sell-off), upside inflation surprises, and resilient growth likely cannot coexist indefinitely,” Wolfe Chief Economist Stephanie Roth wrote in a Monday note. Roth’s view is that “rates likely continue repricing higher until either growth weakens, equities begin to crack more materially, or Trump reaches his pain threshold and takes a deal with Iran.”
