LONDON, April 17 (Reuters) – Stocks and bond prices jumped on Friday, while oil and the dollar fell sharply after Iran’s foreign minister said passage for all commercial vessels through the Strait of Hormuz is declared completely open for the remaining period of ceasefire, in line with the ceasefire in Lebanon.
Oil dropped as much as 10% to below $90 a barrel immediately after the news, while short-dated government bond yields tumbled as investors priced out the likelihood of near-term rate hikes, especially in Europe, and stocks surged.
The dollar, which has acted as a safe-haven since the start of the war in late February, fell sharply against the euro, pound and yen.
COMMENTS:
NICK KENNEDY, CURRENCY STRATEGIST, LLOYDS, LONDON: “For starters, I don’t think it’s surprising and (talks) has been moving in this direction.” “From a markets perspective it’s about the duration of the disruption, so the swifter transit can get through the better, and markets reprice the outlook.” “The moves are all in the right direction, it’s just difficult to position for the news and it’s difficult to believe.”
MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON:
“It’s all well and good having a ceasefire and we don’t want kinetic action to resume, of course. But during the ceasefire thus far, we’ve still seen the whole Strait of Hormuz remaining impassable. We’ve still had commodity conditions continuing to tighten. If we move to a situation where actually the path is still towards de-escalation – but we now have the bonus of commodity flows through Hormuz getting back to something resembling a normal level that we saw pre-conflict – then that’s obviously removing a pretty chunky tail risk for the economy as well. And I think that’s why markets are reacting so positively.”
LARS SKOVGAARD, SENIOR INVESTMENT STRATEGIST, DANSKE BANK, COPENHAGEN
“I think it will be positive but not something that will propel the market higher. You will most likely see some index rotation, a rebound in leisure names for example, and then we start focussing on earnings.
It could lead to outperformance in Europe compared to U.S. and you could see a rebound in emerging markets.”
TOM DI GALOMA, MANAGING DIRECTOR OF GLOBAL RATES TRADING, MISCHLER FINANCIAL GROUP, PARK CITY, UTAH:
“Oil is falling pretty good here… I think that that’s what’s driving the whole move.”
“Do we actually get a prolonged ceasefire and a straight opening? I don’t know. This seems like it’s going to take some time to work itself out. But right now, I think that’s what’s going on… It’s all the good news coming out of the Gulf.”
JOSEPH TREVISANI, SENIOR ANALYST, FX STREET, NEW YORK:
“It does all point In the same direction. Nobody in their right mind, and certainly not the administration, trusts anything that Iran says, but actions do matter. Oil is now $86.5. That’s certainly the story today. That’s probably going to weaken the dollar actually.
“What you’re seeing here is a resolution or a potential resolution that the markets are going to love.”
“This resolution is going to drive the markets higher. It’s going to drop the dollar somewhat because eventually all of this, all of the oil resumption is going to be dollar-based. So that’s somewhat good for the dollar. But still, the dollar is going to be dominated by the change in interest rates.”
EVELYNE GOMEZ-LIECHTI, MULTI-ASSET STRATEGIST, MIZUHO, LONDON:
“For now, the market is treating it as a step forward.”
“I’m inclined to think that there is still risk that they (Iran) take it (the Hormuz opening) off the table. I think for them one of the main things is, how can they ensure that there won’t be attacks in the future? And they have said several times that that’s one of the big points for them.”
“It takes the risk of an emergency (central bank rate) hike off the table. There are still a lot of unknowns, but if you have these two parts kind of trying to move a bit closer together. That is positive and just putting myself in the shoes of a central banker, you would prefer to err on the side of caution.
There’s already tightening price in the curve. So I think for now, it shifts the narrative more towards holding here and assessing what’s going to happen, rather than keep adding to those hike expectations. So I think we could see the market of shift more towards this holding reaction function for ECB and Bank of England.”
(Reporting by Markets Breaking News Team; Compiled by Amanda Cooper; Editing by Dhara Ranasinghe)
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