Oil jumps on Iran tensions, US stock futures drop

Oil jumped and US equity-index futures retreated as traders turned cautious following a weekend flare-up in US-Iran tensions, curbing optimism that strains in the Middle East were easing.

Brent jumped about 5% to just under $95 per barrel and natural gas soared after the US Navy seized an Iranian ship during a chaotic weekend that saw Tehran firing at vessels and reimposing controls in the Strait of Hormuz. S&P 500 futures fell 0.5%, after the underlying index closed at a record high Friday following Iran’s earlier declaration that the vital waterway was “completely open.”

Treasuries dropped across the curve on concern higher oil prices will stoke inflation. The dollar — the haven of choice during the conflict — edged up after falling over the past three weeks on hopes for an end to the war.

Read: Seesaw situation: Iran broadcasts Strait of Hormuz is shut
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Even so, most of Monday’s relatively modest moves sent the markets back to last week’s levels, when optimism about a diplomatic resolution boosted sentiment. MSCI’s Asian share benchmark rose 0.6% on optimism about a de-escalation in tensions and a gauge of emerging market equities fully recovered from its losses from the war.

Renewed strains and disruptions in the Strait of Hormuz threaten to reintroduce volatility back into markets after a broad unwinding of war-driven risk premiums over the past two weeks. With the two-week ceasefire set to expire Tuesday, focus is shifting to whether the US and Iran can resume negotiations to ease tensions and reopen the key waterway after initial talks in Islamabad failed.

“It does seem like moving in the same circles to a certain degree,” Kerry Craig, a global market strategist at JPMorgan Asset Management, said on Bloomberg TV. Markets “are looking through what could be the end of or at least the beginning of the end of this conflict.”

President Donald Trump and Iranian officials offered disparate views on the next stage of the war, casting uncertainty over whether the two sides would meet for peace talks with the ceasefire set to expire in the coming days.

Iran signalled it may not join a second round of talks this week while the US maintains a naval blockade, hardening a standoff that had appeared to thaw on Friday and sparked a broad rally in stocks.

Trump, who on Friday said a deal with Iran was all but agreed, threatened by Sunday morning to destroy every power plant and bridge in Iran if negotiations fail. The whiplash underscores how much of last week’s rally was built on hope rather than resolution.

“Although there were various developments over the weekend, things didn’t move in a direction that would cause a major breakdown in ceasefire talks, as had been feared,” said Yugo Tsuboi, chief strategist at Daiwa Securities Co. “So for now the market reaction has been calm.”

In other corners of the market, gold fell 0.4% to $4 810 an ounce and silver declined 0.6%. Bitcoin was little changed at around $74,700. The Treasury 10-year yield rose two basis points to 4.27%. European bond futures also edged lower.

European gas futures surged as much as 11% on Monday as Tehran on Saturday again closed the chokepoint, after it said a US blockade of Iran-linked ships violated the ceasefire agreement.

Earlier on Friday, the S&P 500 notched a third straight week of gains above 3% and is set for its biggest monthly advance since 2020. Gauges in Taiwan, Singapore and China’s CSI 300 Index had all reversed losses that came after the US and Israel attacked Iran in late February.

South Korea’s equity benchmark Kospi advanced as much as 1.4% on Monday, wiping out the losses incurred since the start of the war.

“I still think we are getting to or already at peak uncertainty, though I agree there is hedging risk,” said Billy Leung, an investment strategist at Global X Management. “The selloffs are happening on thin volume, which tells me it is positioning not conviction.”

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.6% as of 11:58 a.m. Tokyo time
• Nikkei 225 futures (OSE) rose 0.5%
• Japan’s Topix rose 0.7%
• Australia’s S&P/ASX 200 was little changed
• Hong Kong’s Hang Seng rose 0.8%
• The Shanghai Composite rose 0.6%
• Euro Stoxx 50 futures fell 1.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.1756
• The Japanese yen fell 0.2% to 158.91 per dollar
• The offshore yuan was little changed at 6.8184 per dollar

Cryptocurrencies

• Bitcoin fell 0.2% to $74 491.63
• Ether was little changed at $2 279.95

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.27%
• Japan’s 10-year yield declined two basis points to 2.400%
• Australia’s 10-year yield declined six basis points to 4.93%

Commodities

• West Texas Intermediate crude rose 6.2% to $89.06 a barrel
• Spot gold fell 0.7% to $4,795.06 an ounce

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