Share markets across Asia posted strong gains on Monday as reports that the United States had agreed a deal with Iran boosted investor risk appetite and lowered energy-related inflation concerns.
Pakistani Prime Minister Shehbaz Sharif said early on Monday via social media that a deal had been struck. U.S. President Donald Trump said the agreement included opening the strategically important Strait of Hormuz, though he did not provide details. Iran said traffic through the strait would be regulated by it and Oman, a development that some market participants feared could introduce a form of toll or regulation that departs from unfettered shipping rules.
"The lack of details especially on freedom of shipping is a concern but not one that should constrain markets today as the surge in risk appetite plays out," said Sean Callow, a senior FX analyst at ITC Markets. He added that the prospect of a sustained fall in energy prices changes the conversation for central banks just ahead of a flurry of policy decisions.
News that the deal had been confirmed provided immediate relief for central banks that convene this week, easing some of the pressure to tighten policy in response to an energy-driven uptick in inflation expectations. Markets had largely anticipated the possibility of a deal, but confirmation was sufficient to trigger a notable market reaction.
In commodity markets, Brent crude fell about 4% to $83.80 a barrel from its recent extremes, well below its May peak of $126.41 a barrel. U.S. crude slid 4.3% to $81.23 a barrel, though that level remained above the roughly $67 a barrel where U.S. crude traded before the conflict began.
Risk assets responded sharply. S&P 500 futures rose 0.8% and Nasdaq futures jumped 1.4%. Nikkei futures climbed 2% to 68,685, notably above Friday's Tokyo cash close of 66,020.
Fixed income markets also reacted. Futures for 10-year Treasury notes rose 10 ticks on growing optimism that lower oil prices would reduce upside inflationary pressures. Investors moved to trim the probability of a U.S. rate hike this year, with December futures edging up 4 ticks and the market-implied chance of an October move now around 40%.
The dollar weakened broadly in the move toward risk-friendly assets. The euro rose 0.4% to $1.1608, while the dollar slipped 0.2% against the yen to 159.93. Sterling climbed 0.3% to $1.3446.
Central banks from the United States, the United Kingdom, Japan, Australia, Switzerland, Sweden, Norway and Russia are all scheduled to meet this week. Japan is viewed in market expectations as the most likely to raise rates this time. The Federal Reserve is widely expected to hold its policy rate at 3.50%-3.75% on Wednesday at Chair Kevin Warsh's debut meeting. Market participants will scrutinize the statement, economic projections and the news conference for any shift in the Fed's easing bias as officials assess inflation risks.
In the United Kingdom, the Bank of England is expected to leave rates at 3.75% on Thursday and hold policy steady through 2026, with officials seen in no rush to tighten. Attention will focus on the BoE's vote split and its monetary policy report. Top-tier U.K. economic releases this week include May inflation, retail sales and April employment. Thursday's Makerfield election is also on watch, where a win for Labour Mayor Andy Burnham could potentially set up a leadership contest against Prime Minister Keir Starmer.
Other commodity moves reflected the shift in yields and sentiment. Non-interest-bearing gold rose 1.4% to $4,280 an ounce as investors rebalanced in response to lower yields and a softer dollar.
Markets will monitor further details about the reported Gulf arrangement as they await central bank guidance this week. For now, the confirmation of the deal has provided a boost to risk assets and removed some immediate upside pressure from energy prices, changing near-term dynamics for both policymakers and investors.