US equity-index futures declined, oil prices jumped and the dollar strengthened on the back of renewed caution post a weekend escalation in US-Iran tensions and the ongoing standoff at the Strait of Hormuz.
S&P 500 futures fell 0.8% after the underlying index closed at a fresh record on Friday when Iran had declared the crucial waterway “completely open.” Investors sought the haven of the dollar, which climbed against major peers with the risk-sensitive Australian and South African currencies leading losses. Gold dropped 1.7% to $4,750 an ounce
Global crude benchmark Brent jumped over 7% to around $96.80 a barrel with the Hormuz Strait — through which about a fifth of the world’s oil and liquefied natural gas flowed — closed. Treasuries fell as rising oil prices fueled inflation concerns and clouded the growth outlook.
Renewed tensions and the closure of the Strait of Hormuz risk reintroducing uncertainty into markets after equities had largely unwound war-driven risk premiums. Before the weekend, US stocks climbed to a record high and the dollar gave up much of its gains since late February as expectations for de-escalation strengthened, giving traders some relief after weeks of whiplash.
Iran has signaled 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. The US also said it intercepted and seized an Iranian-flagged vessel in the Gulf of Oman.
Iran warned over the weekend that ships approaching the waterway “under any pretext” would be treated as violating the ceasefire, with its Revolutionary Guard Corps firing on commercial vessels and leaving tanker operators waiting on Tehran.
US President Donald 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.
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.
Oil is where the gap between market pricing and physical reality has been widest. The market plunge Friday priced in normalization, but shipping routes remain disrupted, tanker rates are elevated and inventories depleted — conditions analysts say will take weeks to work through.
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 a ceasefire agreement that ends Tuesday.
Two-year Treasury yields have climbed since the war began, as traders pared bets on Federal Reserve rate cuts this year. Inflation risks remain high, and won’t easily dissipate even if the shaky US-Iran ceasefire extends beyond its Tuesday deadline.
With inputs from Bloomberg
