Optimism returns to markets as fears over Middle East subside

Stock markets on both sides of the Atlantic bounced back as fears over the Middle East subsided for now as the US outlined steps to free up the flow of oil through the Strait of Hormuz and amid disputed reports Iranian intelligence operatives signalled a willingness to the Central Intelligence Agency to end the conflict.

Tech companies powered the rally on Wall Street, with Amazon and Nvidia leading the Dow Jones Industrial Average higher, while a rally in Bitcoin underpinned gains for crypto firms such as Strategy and Coinbase.

Brent crude oil prices remained elevated and gold prices rose, although bonds continued to sell off despite the Institute for Supply Management services survey showing activity expanded the most in almost four years and ADP private payrolls figures rising the most in seven months.  

Australian futures are pointing to a strong start to the day for the ASX, while Taiko Critical Minerals will make its debut on the NZX in a direct listing and Statistics New Zealand releases December quarter construction activity data.

Ebbs and flows

Investors regained some composure as the US took steps to backstop insurance and escort oil tankers moving through the Strait of Hormuz, while a report in the New York Times Iran was open to negotiating an end to the conflict – denied by Iran’s officials – soothed some concerns about the military operation dragging on.

Brent crude oil prices eased from their peak, with futures up 0.3% at US$81.62 a barrel, while gold futures rose 0.5% to US$5,155 an ounce.

The volatility index, known as Wall Street’s fear gauge, dropped 11% to 20.92, and the tech-heavy Nasdaq Composite led gains on Wall Street, rising 1.5% in late trading, while the Dow was up 0.7% and the S&P 500 rose 0.9%.

Amazon led the Dow higher, up 3.9%, while Nvidia gained 2.5%, with International Business Machines and Cisco Systems also among the leaders.

Bitcoin jumped 7.4% to US$73,260, buoying the likes of crypto firms such as Strategy, Coinbase and Robinhood. NZX-listed Locate Technologies, which operates a Bitcoin treasury strategy, has dropped 13% since the end of January amid the weakness in cryptocurrencies.

Trans-Atlantic movements

European markets were similarly calmed, with the UK’s FTSE up 0.8%, Germany’s DAX gaining 1.7% and France’s CAC 40 advancing 0.8%.

“US and European markets rebounded alongside a pullback in oil prices from recent highs, after the US said it is considering offering shipping assistance to help ease oil flows through the Middle East,” Bank of New Zealand senior interest rates strategist Stuart Ritson said in a note.

Stronger economic data underpinned stock market gains, with the ISM services index showing activity expanded at the fastest pace since July 2022 and ADP private payrolls figures adding the most number of workers in seven months.

Still, bond markets remained soft, with the yield on US 10-year Treasuries rising 2 basis points to 4.08%.

BNZ’s Ritson said bond traders have priced in almost two rate cuts by the Federal Reserve this year, with the threat of inflation posed by oil supply shocks paring back earlier predictions.

The upbeat mood is set to carry through to the antipodes, with futures pointing to a 0.7% gain for the S&P/ASX 200 index when trading opens in Australia, while the kiwi dollar rose to 59.30 US cents at 7am in Auckland from 59.05 cents yesterday.

The S&P/NZX 50 index may come under pressure with eight companies shedding rights to their dividends, including Meridian Energy and Ebos Group.  

Would-be miner Taiko Critical Minerals will debut on the NZX today in a direct listing with a reference price of 11 cents. The company plans to raise money later this year ahead of preparing the site for production from 2028.

Stats NZ will release the December quarter building work put in place survey, which is expected to show a 2% increase in quarterly volumes, while NZ Debt Management is selling $250 million each of five- and nine-year notes in the weekly tender.

Reporting by Paul McBeth. Image from Shaah Shahidh on Unsplash.