Market snapshot: investors begin peace party celebrations

The weekend announcement that a peace deal will be signed between the US and Iran in Switzerland on Friday sent global markets on a tear as investors found a new lease of life.

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The news also flattened the oil price, which fell by more than 4%, and also Treasury yields, as the threat of inflation finally found a ceiling. It has also pushed the likelihood of an interest rate hike by the Federal Reserve into the long grass. There remain other points of contention to be ironed out between the warring parties over the next 60 days, but the move nonetheless is a major step in the right direction.

The full reopening of the Strait of Hormuz is likely to follow as soon as the signatures are dry on Friday, although the full restoration of supply is likely to take some months. Quite apart from the obvious backlogs, there remain questions on the costs of insurance, any potential tolls being removed and the fallout from those facilities which have been damaged or destroyed during the conflict.

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US markets have not yet had the opportunity to react to these developments, but in early trading Dow futures are up across the board with the main indices gaining by as much as 2%, skewed towards the more growth-orientated Nasdaq.

Any such gains would consolidate a strong trading session at the end of the last week, where the AI trade found new friends as the flotation of Space Exploration Technologies Corp Class A (NASDAQ:SPCX) ended with a 19% gain in its first outing, propelling its market cap to over $2 trillion. While most obviously a space-related company, it is also being seen as something of an AI proxy given its exposure to xAI and the read across also sent the likes of NVIDIA Corp (NASDAQ:NVDA), Advanced Micro Devices Inc (NASDAQ:AMD) and Alphabet Inc Class A (NASDAQ:GOOGL) higher.

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The Juneteenth National Independence holiday on Friday will lead to a shortened US trading week, although there is no shortage of points of interest. There will be releases on both housing and retail sales, the latter of which will provide a timely update on actual consumer spending rather than sentiment, while the Fed meeting already seems to be a done deal with a near unanimous consensus that interest rates will be unchanged.

In the meantime, and ahead of any gains when the market opens later, the main indices are in rude health. In the year to date, the Dow Jones has added 6.5%, the S&P500 8.6% and the Nasdaq 11.4%, while the broad rally has extended beyond the concentration of larger cap stocks, leading to a gain of 17.4% for the Russell 2000 index.

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The weekend developments have come at a good time for central banks, and the subsequent drop in energy prices will ease some of the Bank of England’s inflationary concerns when its latest rate announcement hits the wires on Thursday. With GDP currently flatlining and growth prospects unclear, the inflation part of the equation may at least be of less concern and the strong consensus is that rates will remain unchanged at 3.75% as the bank retains its data dependent approach.

Meanwhile, UK markets joined the peace party celebrations with notable gains at the open which have lifted all boats. The FTSE100 saw broad based buying interest which was slightly offset by inevitable falls in the oil majors which, given their heavyweight status in the index, was a meaningful drag.

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Nonetheless, rising mineral prices and risk-on sentiment was a positive double whammy for the mining stocks, while energy-dependent stocks such as Rolls-Royce Holdings (LSE:RR.) and International Consolidated Airlines Group SA (LSE:IAG) flew higher on easing oil price pressures. The beleaguered housebuilders, including Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN), also enjoyed some renewed buying interest and the broad gains add to the resilient performance of the FTSE100, which is now ahead by 6.3% so far this year.