Global markets trade mixed as investors weigh US-Iran peace deal

Global markets show mixed trends as the details of the US-Iran peace deal have yet to be finalized following the signing of a memorandum of understanding between Washington and Tehran on Monday.

A high-ranking US official said the deal was signed on behalf of US President Donald Trump and Vice President JD Vance on the American side and by Iranian Parliament Speaker Mohammad Bagher Ghalibaf on the Iranian side.

The agreement outlines the framework of future negotiations and relations between the two countries. The US official said the global economy will welcome Iran more warmly if Tehran cooperates with Washington and does not create nuclear weapons, and also if it ceases to fund terrorism in the region, among other demands.

Trump said Tehran agreed to never have a nuclear weapon, while Vance said the deal reached only provides a broad framework, and that further details will be discussed in subsequent talks.

Investors exercise caution on Tuesday following Monday’s rally and the signing of the deal between the US and Iran due to the lack of clarity.

The cautious outlook was also fueled by estimates that establishing the confidence necessary to resume transit via the Strait of Hormuz could take weeks.

The US-Iran deal brought some relief to the markets initially, but reports that the agreement could pit the US against Israel revealed the fragile ground the entire process is operating on.

The two sides reaching a deal and signing a memorandum represents a diplomatic breakthrough able to eliminate a massive source of volatility in markets but concerns over the deal’s sustainability continue, analysts say.

The market focus has now shifted to the Fed’s meeting on Wednesday, easing risk appetite. At the same time, all eyes turned to the 52nd G7 summit held in France.

Meanwhile, IMF managing director Kristalina Georgieva said the global economy maintained its resilience, navigating the over-three-month period of the war in the Middle East, as commodity prices, inflation, inflation estimates, and financial conditions have yet to signal a global slowdown.

At the same time, New York Fed reported the manufacturing index fell to 5.7 in June, below estimates, while industrial production in the US rose 0.1% month-on-month, falling short of expectations.

The US 10-Year Treasury yield is trading flat at 4.48% and the US Dollar Index is up 0.1% at 99.8.

Gold is trading up 0.3% at $4,322 per ounce, while Brent crude oil is trading down 0.7% at $82.4 per barrel.

The New York Stock Exchange traded positively amid the US-Iran deal and falling oil.

The over-$2 trillion space, aviation, and artificial intelligence (AI) firm SpaceX announced its initial public offering has been completed and around $85.7 billion in gross proceeds were raised following the over-allotment option, driving up its shares 19.6% on Tuesday.

Falling oil prices pressure energy stocks while supporting airline stocks.

US energy firms ExxonMobil and Chevron lost 4.14% and 3.64%, respectively, in shares.

United Airlines shares gained 3.85%, American Airlines 3.2%, and Delta Air Lines 1.22%.

Media conglomerate Fox’s shares declined 15.2% following the announcement that Roku would acquire it for $22 billion.

The Dow Jones rose 0.92% to a record high of 51,945.89 points on Monday, the S&P 500 climbed 1.65%, and the Nasdaq surged 3.07%. American indexes started Tuesday mixed.

Meanwhile, the European stock markets closed Monday with gains except for the UK, as the US-Iran deal led to a surge, while British stocks dropped due to falling energy shares.

European Central Bank (ECB) President Christine Lagarde said high energy prices are starting to spill over to other areas, signaling the need for measures against second-round effects of inflation, saying the bank is monitoring the core inflation indicator.

German Bundesbank President Joachim Nagel said the ECB will maintain its cautious stance against inflation risks even if the Middle East tensions ease.

The DAX 40 climbed 1.05%, the CAC 40 0.4%, and the FTSE MIB 30 0.66, while the UK’s FTSE 100 fell 0.39% on Monday. European indexes started Tuesday on a mixed trend.

At the same time, Asian stock markets traded mixed following the interest rate decision by the Bank of Japan (BoJ) and weak macroeconomic data from China.

The BoJ hiked its policy rate by 25 basis points to 1%, raising its policy rate to 1% for the first time since 1995.

The decision was approved by a 7-1 vote, with board member Toichiro Asada dissenting in favor of keeping rates unchanged.

The BoJ plans to continue reducing its purchases of Japanese government bonds by 200 billion yen ($1.3 billion) per quarter before ending the tapering process and maintaining monthly purchases of 2 trillion yen from April 2027.

The rate hike came in amid inflationary pressures and the weakening Japanese yen; even though a weak yen boosts Japanese exports’ competitiveness, it also raises import-driven inflation and pressures public finances.

China’s retail sales for March declined 0.6% on an annual basis, the first decline since December 2022.

Urban fixed-asset investments for May fell 4.1%, influenced by the real estate and manufacturing sectors.

New house prices in the country fell 0.2% and resale home prices dropped 0.3%, while the unemployment rate fell from 5.2% to 5.1%.

China’s industrial production in May rose 4.5%, above estimates.

The disruption in energy flows due to the Middle East war drove up commodity prices, thus slightly easing the deflationary pressures plaguing the Chinese economy for years, but the fact that these price hikes are cost-driven and not demand-driven shows the economic fragility persists.

The Reserve Bank of Australia maintained its policy rate at 4.35%.

The Nikkei 225 rose 0.6% and the Kospi Index 1.9%, while the Shanghai Composite Index traded flat and the Hang Seng Index fell 1.3%.

 

*Writing by Emir Yildirim