[HONG KONG] Most equities extended a global rally on Wednesday (Jun 25) after Iran and Israel agreed to a ceasefire that ended more than a week of hostilities, while the US dollar struggled to recover from a sharp drop stoked by bets on a US interest rate cut.
However, wariness over the agreement by the Middle East foes helped oil prices climb, though they are still well down from their highs on Monday.
Investors around the world breathed a sigh of relief after US President Donald Trump announced the ceasefire days after US forces bombed Iran’s nuclear sites, which he said were “completely destroyed”.
The Israeli government said it had agreed to the US deal after achieving all of its objectives in the war with Iran, with Prime Minister Benjamin Netanyahu hailing a “historic victory” after 12 days of bombing.
Stocks surged and oil tanked on the news, and the optimism rolled into Wednesday, with Hong Kong, Shanghai, Sydney and Singapore leading the gains across Asia. Tokyo edged down.
Oil prices later rose, with both main contracts up more than 1 per cent.
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However, they are still down around 16 per cent from the highs hit Monday in the first reaction to the US bombing of Iran and before the ceasefire announcement.
The mood was also helped by Fed boss Jerome Powell choosing not to pour cold water on the prospects of a rate cut.
In closely watched testimony to Congress, he said that “if it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates sooner rather than later”.
While he said: “I don’t think we need to be in any rush because the economy is still strong”, the comments indicated a flexible tone.
They also came after Fed governors Christopher Waller and Michelle Bowman suggested officials could reduce borrowing costs next month.
The US dollar tumbled against its peers and remained under pressure against the yen, pound and euro in early Asian trade.
“The market staged a full-throttle risk-on revival, launching global equities into the stratosphere as oil prices cratered and rate-cut bets gained momentum,” said SPI Asset Management’s Stephen Innes.
“With the Middle East truce – however duct-taped and temperamental – holding long enough to calm headlines, traders pulled the ripcord on the fear trade and dove headfirst into equities.
“Trump’s… scolding of Israel and Iran added ice water to the fire, or at least enough jawbone to muzzle the Middle East combatants for now.” AFP
