Canada’s main equity gauges traded higher on Tuesday as investors reacted to reports of forward motion in talks between the United States and Iran, even as a U.S. naval blockade of Iranian ports remains in effect.
By 12:41 ET (17:41 GMT) the S&P/TSX 60 had added 8 points, or 0.6%. The broader S&P/TSX composite was up by 165 points, or 0.5%.
Those gains followed Monday’s close, when the S&P/TSX composite finished 0.5% higher at 33,879.24, trading close to what the market described as an almost six-week high.
U.S. markets move higher in tandem
North American markets broadly advanced on Tuesday. U.S. benchmarks moved up materially, with the Dow increasing by 291 points, or 0.6%, the S&P 500 climbing 71 points, or 1.1%, and the Nasdaq rising 407 points, or 1.8%.
The prior session on Wall Street saw the major averages recover from an initial disappointment after weekend talks between Washington and Tehran did not immediately produce an agreement. Comments from the U.S. president that the White House had been contacted by Iranian officials seeking to "make a deal" and his assertion that Iran "will not have a nuclear weapon" appeared to ease some investor concerns.
Geopolitical backdrop and the naval blockade
The conflict environment remains complex. A U.S. blockade of Iranian ports began on Monday, a move that could further constrain oil flows already disrupted through the Strait of Hormuz. At the same time, Reuters reported that both Washington and Tehran have been engaging with one another and that there has been some forward motion toward a deal to make a two-week ceasefire permanent.
Pakistan has been reported to have offered to host another round of talks during the ceasefire, with an initial round held in Islamabad over the weekend. Meanwhile, Israel and Lebanon were scheduled to begin direct peace discussions in Washington on Tuesday. Those talks have been set against continuing air strikes by Israel on Hezbollah-linked targets in Lebanon, operations that remain a significant sticking point for the fragile halt to hostilities.
Within that diplomatic flurry, Washington has reportedly asked Iran to commit not to enrich uranium for 20 years - a condition that speaks directly to efforts to ensure Iran would not develop nuclear weapons. The ongoing naval blockade, the diplomatic outreach and the proposed non-enrichment demand together formed the immediate geopolitical frame for markets on Tuesday.
Oil retreats from recent highs
Oil prices eased on guarded hopes that a ceasefire could become permanent. Brent crude futures, the global benchmark, were last reported down 1.2% at $98.14 a barrel, while U.S. West Texas Intermediate crude futures fell 2.5% to $96.64 a barrel.
Those moves marked a pullback from recent spikes following the joint U.S.-Israeli assault in late February that substantially disrupted flows. The International Energy Agency had warned that oil prices may not yet fully reflect the severity of the supply shock, an observation that left markets cautious even as prices dipped below the four-figure mark for some contracts.
Gold steadies as dollar softens
Precious metals gained ground on Tuesday amid a softer U.S. dollar and nascent signs of de-escalation in the Iran conflict. Spot gold rose 0.7% to $4,770.73 an ounce by 08:13 ET, while gold futures were quoted up 0.5% at $4,793.20 per ounce.
Market participants noted that weakness in the dollar can make gold more attractive to overseas buyers, potentially underpinning demand. Historically held as a hedge in times of geopolitical uncertainty, gold has at times been less favoured in this conflict because investors have leaned on the dollar for safety. The characterization of the U.S. as a net energy exporter, and the perception that it might be insulated from disruptions to Persian Gulf oil flows, has contributed to that dynamic. As signs of de-escalation accumulated, the dollar weakened somewhat and bullion advanced.
Big bank earnings draw investor focus
Market attention this week shifted to first-quarter results from major U.S. banks, led by JPMorgan Chase and Wells Fargo.
JPMorgan reported first-quarter adjusted revenue of $50.54 billion, topping Bloomberg consensus expectations of $49.26 billion. Net income rose to $16.5 billion, or $5.94 a share, compared with $14.6 billion, or $5.07 a share, a year earlier. The bank said revenue was helped by market volatility, which boosted equity-market trading activity as clients repositioned and hedged portfolios amid heightened movements in stocks.
Despite the better-than-expected top-line print, Chief Executive Jamie Dimon cautioned about a range of risks, describing an "increasingly complex set of risks" including geopolitical tensions and wars, energy price swings, uncertain global trade policies, large fiscal deficits and elevated asset prices.
Wells Fargo also reported preliminary first-quarter revenue growth and higher net interest income, highlighting robust consumer and business financial health. The group cautioned, however, that the impact of the oil price surge linked to the Iran situation would likely take time to manifest and said it was positioned for a variety of economic scenarios.
Shares of both JPMorgan and Wells Fargo were lower in premarket U.S. trading.
Market positioning and investor outlook
Investors appeared to adopt a wait-and-see stance in the face of mixed headlines. Analysts at ING noted that while media developments offered limited cause for optimism, markets were more inclined to observe developments rather than pre-empt outcomes. In their view, risk assets retained a "glass half-full" tone amid the current uncertainty.
For Canadian and global investors, the immediate influences to monitor include the success or failure of the diplomatic track between the U.S. and Iran, the operational impact of the naval blockade on crude flows, and how sustained volatility could affect trading revenues at major financial institutions.
In the near term, equity markets are likely to remain sensitive to incremental news on the ceasefire negotiations, further reports on blockade operations, movement in oil and bullion prices, and earnings updates from financial-sector heavyweights.