Stocks Pare Gains as Iran Strikes Lift Oil Prices – Asia Market Wrap

Stocks trimmed earlier gains while crude oil climbed after US strikes on targets in Iran weakened optimism around a possible agreement to end the conflict.

S&P 500 futures rose 0.6%, though the advance was smaller than Monday’s rally, when US markets were closed. Asian equities gained 0.3% after giving up stronger early gains as US forces struck missile launch sites in Iran and vessels allegedly attempting to deploy mines, according to US Central Command. Officials described the operation as defensive. European markets were also set to open lower.

Risk appetite weakened as oil prices rebounded, clouding hopes for an interim agreement to reopen the Strait of Hormuz. Brent crude climbed 2.5% to above $98.50 a barrel after plunging more than 7% on Monday during thin holiday trading in London and New York.

The dollar strengthened against all major peers, while gold reversed earlier gains to fall 1% to around $4,525 an ounce. Treasuries rallied across the curve as cash trading resumed following the holiday break. In contrast, government bonds in markets including Japan and Australia declined.

Despite the renewed volatility, traders remained cautiously optimistic as shifting headlines around Middle East negotiations continued driving market swings. Global equities reached record highs on Monday amid hopes that the worst of the energy shock may have passed. At the same time, elevated oil prices and persistent inflation concerns have reinforced expectations that the Federal Reserve could keep interest rates higher for longer.

Earlier, President Donald Trump said negotiations with Iran on an interim arrangement to extend the ceasefire and reopen the strait were “proceeding nicely.” Pakistan’s military chief, Asim Munir — acting as a key intermediary between the sides — told China that a deal was “close to being reached.”