Markets Rally on Hopes of U.S.-Iran Ceasefire Extension and Hormuz Reopening as Trump Weighs Final Decision

A Tentative Agreement

Global financial markets were electrified on Friday by reports that U.S. and Iranian negotiators had reached an agreement to extend their three-month-old ceasefire and lift restrictions on shipping through the Strait of Hormuz. Four sources told Reuters that the deal would extend the truce for another 60 days, allowing traffic to flow through the strategic waterway while negotiators tackle difficult issues such as Iran's nuclear programme. However, the situation remained tenuous, with U.S. President Donald Trump stating he would make a "final determination" on the deal from the Situation Room, and Iranian state media indicating the agreement had not been finalised.

I will be meeting now, in the Situation Room, to make a final determination.

In a lengthy social media post, Trump stressed that Iran must agree never to have nuclear weapons and to open the Hormuz shipping lanes. He added that Iran "will complete the immediate removal" of mines in the strait and that the U.S. naval blockade of Iranian ports "will now be lifted," though it was unclear if Iran had formally agreed to these terms.

Oil Markets Tumble

Crude prices gyrated throughout the week on conflicting signals but were on track for a dramatic weekly decline. Brent crude futures fell more than 1% on Friday to around $92.47 a barrel, putting the international benchmark on course for a weekly drop of over 10%—its steepest since early April. U.S. oil futures fell by a similar margin to $87.52 a barrel. IG analyst Tony Sycamore noted that as long as the narrative of a coming deal holds, crude oil has room to extend its decline toward trendline support in the low $80s.

Consensus remains that the conflict is over, and a deal is coming. As long as this narrative holds, crude oil has room to extend its decline toward trendline support in the low $80s.

Analysts at ING cautioned that a recovery in upstream production would be gradual rather than immediate, as producers had shut in output to manage storage constraints and some regional refinery infrastructure was targeted in earlier attacks.

Equity Markets Hit Records

Wall Street's major indexes extended their record run, with the S&P 500 on track for its ninth consecutive weekly gain—its longest winning streak since December 2023. The rally was fueled by revived optimism around AI and strong earnings, with Dell surging as much as 39% after raising its full-year profit and revenue forecasts. Goldman Sachs lifted its year-end S&P 500 target from 7,600 to 8,000, while Federated Hermes set a target of 9,000 for next year, citing a longer AI-driven investment cycle.

The question now is whether this can continue. We believe we're still in the middle innings of a longer AI-driven investment cycle.

Asian markets also rallied, with South Korea's KOSPI jumping 3.5% and benchmarks in Japan and Taiwan rising more than 2%. In Europe, the Stoxx 600 edged up 0.5%, though the FTSE 100 slipped 0.2%.

Currency and Bond Markets React

The dollar fell against major currencies and was on track for its second consecutive week of losses, with the dollar index down 2% at 98.81. The euro rose 0.26% to $1.1678, while the pound gained 0.23% to $1.3473. The Japanese yen traded at 159.22 per dollar, remaining near the significant 160 level, as Japan's Ministry of Finance confirmed it spent 11.7 trillion yen intervening in currency markets over the past month to support the currency.

We don't have answers about a lot of things and it's creating a divergence or lack of consensus or complete narrative especially for central banks. That's why you're seeing that reflected in the lack of movement in the U.S. dollar overall.

U.S. Treasury yields dipped, with the 10-year yield at 4.44% for a weekly drop of about 15 basis points. However, analysts cautioned that a deal was unlikely to quickly unwind the inflation impulse from high fuel prices, with data showing U.S. inflation rising at its fastest pace in three years in April.

The Road Ahead

Despite the market optimism, significant hurdles remain. Traffic through the Strait of Hormuz remains a small fraction of pre-war levels, and the recovery in both upstream production and refinery output is expected to be gradual. Money markets expect the Federal Reserve to keep interest rates steady for the rest of the year, with some expectations of a 25 basis point hike in December. Fed officials have signaled a potential case for raising rates if inflation does not ease soon, keeping investors highly sensitive to both geopolitical headlines and incoming inflation data.

Gasoline prices in the U.S. fell again on Friday, sliding four cents to a national average of $4.39 a gallon according to AAA, though the cost for drivers has risen 47% since the war began.