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Stock markets rose and oil prices flattened on Friday with investors nervously optimistic about the shaky US-Iran ceasefire holding ahead of weekend talks aimed at finding a long-lasting truce.
Tuesday’s announcement of a two-week halt to fighting between the United States and Iran that would see the key Strait of Hormuz reopened sparked a wave of euphoria across markets.
But hopes for an end to the crisis have been hit by squabbles over the agreement and the future of the waterway through which about a fifth of the world’s oil and gas passes.
“The ceasefire agreement announced earlier this week has felt fragile,” noted AJ Bell’s head of markets Dan Coatsworth.
“With talks between Tehran and Washington set to get underway on Saturday, investors could be in for a fretful weekend as they wait for indications of whether a path to lasting peace is possible.
“Ahead of this, investors may well be tempted to hedge their bets,” Coatsworth added.
Following gains across Asia, Europe’s main equity indices showed solid gains in early afternoon trading. On Thursday, stocks jumped late in the day in New York on news that Israel and Lebanon planned to hold talks next week in Washington.
Oil prices were little changed with the main traded contracts just below $100 a barrel.
Even with this week’s rebound, stocks remain lower and oil prices significantly higher than before the start of the war.
A cloud of uncertainty hung Friday over the scheduled start of the talks in Pakistan, with no announcement yet on the arrival of negotiators and both sides accusing the other of failing to properly implement the ceasefire.
US President Donald Trump has voiced displeasure at Iran’s handling of the strategic Strait of Hormuz, which remains largely blocked to traffic.
Added to the unease, French energy giant TotalEnergies said it had shut down a major refinery in Saudi Arabia after it was damaged during the war.
Japan’s Prime Minister Sanae Takaichi said Tokyo planned to release a further 20 days’ worth of oil reserves as early as next month.
Tehran has meanwhile reacted angrily to Israeli attacks in Lebanon, insisting that it too falls under the ceasefire agreement.
Ahead of Wall Street reopening, eyes will be on US consumer price inflation data for April.
“We will see how the conflict has impacted” prices in the world’s biggest economy, said Kathleen Brooks, research director at XTB.
“Analysts expect a sharp jump to 3.4 per cent for headline inflation, up from 2.4 per cent for March.” Brooks added that “a higher reading for headline CPI could make it hard for the Federal Reserve to cut rates this year and would suggest a lasting inflationary problem, which could weigh on risk sentiment… and boost the dollar”.
The dollar slipped on Friday, putting it on track for its largest weekly drop since January, as investors sold safe-haven assets on the assumption that oil shipping will resume if a ceasefire holds in the Gulf. The dollar had towered in March as one of the few bastions of safety as the US and Israeli war on Iran sent oil prices surging and hit stocks and gold, while inflation worries pressured bonds. But since a fragile ceasefire was agreed on Tuesday, those positions are being unwound.
The euro has rallied 1.8% this week to trade at $1.17255, while sterling has gained 2% since Monday to $1.346.
The risk-sensitive Australian and New Zealand dollars are set for weekly rises of nearly 3% on the dollar, with the Aussie trading just above 70 cents.
“The market still seems generally optimistic, despite some of the ceasefire fraying,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. Data on Friday showed that US consumer prices rose by the most in nearly four years in March as the war with Iran boosted oil prices and the pass-through from tariffs persisted.
The increase was largely in line with expectations and the markets’ direction is more likely to hinge on the outcome of weekend peace talks between the US and Iran in Islamabad, analysts said.
“People were buying the US dollar when the war was at its most intense moment and now they’re selling as the tail risk of a really bad outcome has faded quite a bit,” said Jason Wong, senior strategist at BNZ in Wellington.
“Even though it still looks a bit shaky, the ceasefire removing that tail risk is important from a sentiment point of view,” he said, adding that the mood could turn very quickly if the anticipated weekend peace talks fail to deliver progress.
“If there are positive talks, that would be dollar-negative. And if we get to Monday and talks went badly and there’s still a lack of ships … things could turn around quickly,” said Wong.
There has been little progress so far in the Strait of Hormuz. In the first 24 hours of the ceasefire, just a single oil products tanker and five dry bulk carriers sailed through the passage that before the war accommodated about 140 ships a day.
The yen, under pressure for years from Japan’s low rates and more recently from its vulnerability to high oil prices, rose above its lows against the dollar – but not by much, and was sold against other currencies.
The yen slipped to 159.75 per dollar on Friday. The US dollar index dipped 0.24% and was 1.6% lower so far this week.
China’s yuan, which has not fallen significantly since the Iran war began on February 28, was set for its biggest weekly rise in 15 months and is trading at its strongest levels since 2023.
Agencies
