US-Iran agreement triggers market boom! Risk assets and US bonds both rise, analysts warn that risks still exist.

The peace agreement reached between the United States and Iran sparked market euphoria, with international oil prices plummeting on Monday and the prices of risky assets and US bonds rising. The energy market reacted most strongly to the news. The July delivery of WTI crude oil futures fell by 5.04% to $80.60 per barrel, while the August delivery of Brent crude oil prices dropped by 4.23% to $83.64 per barrel. Asian stock markets surged significantly, with South Korea's KOSPI index and Japan's Nikkei 225 index rising by over 5%, and Australia's S&P/ASX200 index rising by 1.3%. Futures for European and US stock indices all rose, with Dow futures up 0.82%, S&P 500 index futures up 1.07%, Nasdaq futures up 1.80%, and Euro Stoxx 50 futures up 1.6%. Josh Gilbert, chief analyst for eToro Asia-Pacific, said: "The market has been waiting for this news for months, and the easing effect has begun to show, with oil prices falling and risky assets strengthening... Previously, President Trump confirmed that the Strait of Hormuz will reopen and the US naval blockade will be lifted." The fall in oil prices and the prospects of peace have also had an impact on other asset classes. The US dollar index fell by 0.32% to 99.483, while the yield on the benchmark 10-year US Treasury bond dropped by 5 basis points to 4.42%, indicating that investors have eased concerns about inflation due to the drop in energy prices. Billy Leung, investment strategist at Global X ETFs, said: "The most direct impact is that the inflation risk premium that the market has been carrying since the closure of the strait will be repriced." He also said: "While oil price fluctuations are the most dramatic, the more convincing signal actually comes from the bond market: bond yields are falling while stock prices are rising, indicating that the market sees the energy shock as temporary rather than structural." Rate hike expectations cool, US bond prices rise across the board After the news of the US-Iran agreement, investors lowered their expectations for a rate hike by the Federal Reserve, leading to a rise in US Treasury bonds. Yields on bonds of various maturities all decreased, with short-term bond yields experiencing the largest decline, as short-term bonds are most sensitive to changes in monetary policy. Swap traders currently estimate a 60% likelihood of a 25 basis point rate hike by the Federal Reserve by the end of the year, down from about 80% last Friday. US bond prices rising reflect market optimism: the resolution of the Iran conflict will help reopen the Strait of Hormuz and lower oil prices. Given that US Treasuries serve as the benchmark for global borrowing costs, their impact extends far beyond the $31 trillion US Treasury market, affecting everything from corporate debt to emerging market assets. Matthew Haupt, hedge fund manager at Wilson Asset Management in Sydney, said: "After the easing of oil price pressures, central banks can now adopt a more moderate stance as they have the ability to wait and see the short-term inflation situation." After the US-Iran agreement, US bond yields fell The yield on the US two-year Treasury bond fell by 5 basis points to 4.03%, while the yield on the benchmark 10-year Treasury bond also fell by 5 basis points to 4.42%, and the yield on the 30-year Treasury bond fell by 5 basis points to 4.92%, its lowest level since May 7. The US and Iran announced that an agreement had been reached to reopen the Strait of Hormuz. The Strait of Hormuz is a transportation route for about one-fifth of global oil supplies. This is undoubtedly good news for the United States, especially as US inflation is currently soaring at its fastest pace in three years, and market attention is once again focused on Kevin Wash, the new chairman of the Federal Reserve, and the Fed's future policy direction. The Federal Reserve will announce its latest interest rate decision on Wednesday. Economists generally expect the Fed to keep its benchmark interest rate unchanged in the range of 3.5% to 3.75%, while also watching how the energy price shock caused by the Iran war will affect the economy. However, US bond investors cannot completely let their guard down. Within minutes of the agreement being announced, both the US and Iran interpreted the agreement differently, indicating that reaching a consensus on lingering issues such as the Iran nuclear issue remains a major challenge. Andrew Ticehurst, strategist at Nomura in Sydney, said: "The Strait of Hormuz is expected to officially reopen on Friday, so there may be an anxious waiting period from now until then. Israel's movements during this period will also be a major uncertainty." Safe-haven assets favored, market concerns persist In addition to safe-haven US Treasuries, the price of gold also rose. Leung of Global X ETFs said: "Gold is an interesting exception here. In a pure risk-on trade, with geopolitical premiums gradually diminishing, gold prices should fall. However, the price of gold is still holding around $4,300 per ounce, indicating that the market does not yet fully trust this agreement." The spot price of gold rose by nearly 2% to $4,302.19 per ounce. There is still uncertainty surrounding the US-Iran agreement, as the agreement has not been signed yet and there are risks in the implementation process. Gilbert of eToro warned: "The agreement will not be signed until June 19, details are still scarce, and this conflict, as shown multiple times, headlines may change in an instant." Vivek Dhar, director of commodities and sustainability research at the Commonwealth Bank of Australia, expects that assuming the strait remains open and exports recover, the price of Brent crude oil will fall to around $80 per barrel by the end of the year. However, he warned that damage to refining infrastructure, the presence of mines, and uncertainty in oil tanker transport could slow down the recovery of normal operations. Nevertheless, he said the market may find solace in the outlook: as long as oil supply recovers to 60% to 70% of pre-war levels, the expectation of global oversupply could reappear. For investors, the biggest impact may come from the drop in energy prices on inflation and central bank policies. Falling oil prices can ease pressures on households and businesses, as well as reduce the risk of a full-blown rebound in inflation. Gilbert said: "Overall, it's positive for global investors. The continued drop in oil prices will alleviate pressure on central banks."