Markets Swing on War Hopes as US-Iran Talks Face Contradictions

Asian stock markets turned down and oil prices spiked immediately following a speech by former US President Donald Trump about the war. Multiple reports indicate South Korea's Kospi fell 2.5 percent and Japan's Nikkei fell 1.5 percent after the address, while Brent crude oil rose 5 percent to $106. This initial market shock coincided with a major military development, as the Israeli Air Force stated that its attacks on vital targets, such as military and nuclear facilities, are completed. A military source claimed the attacks have halted Iran's ability to develop nuclear weapons and long-range missiles for a 'long time', though the extent of the damage remains unconfirmed.

Diplomatic channels appear active but fraught with preconditions. Through mediating countries like Pakistan and Turkey, the US and Iran are holding talks about the war, according to multiple reports. Pakistan has asked the US to urge Israel to remove two Iranian top politicians from its 'death list' as a precondition for negotiations, according to three sources for the Associated Press. The individuals are Foreign Minister Abbas Araghchi and Parliament Speaker Bagher Qalibaf. The US side has assured that the individuals will not be targeted, multiple reports indicate, though the specific terms of any broader negotiation are unknown.

Subsequent hopes for a de-escalation or end to the war caused dramatic rebounds in Asian and European equities. Hope for a de-escalation caused Asian stocks to rise, with Nikkei up over 4 percent and Kospi up about 6.6 percent, according to multiple reports. European stocks rallied on Wednesday as comments from both sides gave conviction for a near-term end to hostilities. The FTSE 100 closed up 1.9%, FTSE 250 up 2.3%, and AIM All-Share up 3.1% on Wednesday. Similarly, the CAC 40 in Paris closed up 2.1%, and the DAX 40 in Frankfurt rose 2.7%. Asian shares also advanced Tuesday as investors awaited signals on when the war may end, with Tokyo's Nikkei 225 gaining 2.1%, South Korea's Kospi surging 3.5%, and Taiwan's benchmark climbing 3.9%.

Oil markets mirrored this volatility, swinging on supply fears and diplomatic signals. Brent oil traded lower at $101.83 on Wednesday afternoon from $107.38 late Tuesday. This followed a period of extreme spikes, with Brent oil peaking around $119 per barrel overnight and circling around $100 per barrel in afternoon trading. The Bank of England said the Middle East war caused 'a substantial negative supply shock to the global economy'. A major supply choke point is the Strait of Hormuz, which Iran has nearly halted traffic through, according to multiple reports. Oil prices fell after reports that various countries are ready to release crude oil from their reserves. North Sea oil fell to just under $100 per barrel, and US light oil traded around $93 per barrel after being over $102 in the morning. Earlier, oil price increases followed President Donald Trump's announcement that Iran will be bombed 'back to the Stone Age', and US WTI oil has risen 11.5 percent during the day at one point.

US stock markets posted significant gains, buoyed by the declining oil prices and optimism. Declining oil prices contributed to the best trading day on New York stock exchanges since the war in Iran began. The S&P 500 climbed 1 percent, Dow Jones rose 0.8 percent, and Nasdaq ended up 1.2 percent on Monday. Research indicates US stocks rallied for a second day as hopes grew that the war in the Middle East may be nearing a conclusion. The S&P 500 closed up 0.7%, adding to gains from the previous session as investors assessed comments by President Donald Trump on the war’s trajectory, according to research. Stock markets in the US and large parts of the world have fallen since the US and Israel began their war against Iran on February 28. During Wednesday trading, the broad S&P 500 index has risen 2.3 percent so far during the trading day, though it later closed up 0.1 percent, with the Dow Jones industrial index down 0.1 percent and the Nasdaq composite index up 0.2 percent. Sector movements were pronounced, with US travel, mining and technology stocks rising, with Sandisk Corp. up around 9%. Miners including AngloGold Ashanti Plc and Newmont Corp. climbed as gold advanced for a fourth day, while Nike Inc. plunged more than 15% after a gloomy outlook.

Conflicting reports cloud the picture of diplomatic progress. Stocks rallied on Wednesday, and oil prices cooled, on hopes for an end to the conflict despite Iran reportedly rejecting a US peace plan. Iranian state television reported that Iran rejected a peace plan proposed by the US, citing an unidentified senior official. A direct contradiction exists over a potential ceasefire. Donald Trump claimed Iran had asked the US for a ceasefire, adding that the US would only consider it if the Strait of Hormuz were reopened. In contrast, Iran’s foreign ministry said the claim of a ceasefire request was false and baseless, according to state TV, as reported by research. This dispute has significant implications for the status of negotiations.

Military actions continued alongside diplomatic maneuvers. The US said it took out more than a dozen minelaying Iranian vessels Tuesday. Separately, fuel tanks are burning in Kuwait after an Iranian drone attack on an airport, according to the country's civil aviation authority. Developments at the Strait of Hormuz added complexity, as a Pakistani oil tanker passed through the strait. Iran's foreign minister emphasized the strait is only closed for Iran's enemies or those attacking Iran, though the criteria for passage are not fully defined.

Further Asian market fluctuations were tied to Trump's optimistic statements. Falling oil prices and Trump's statement that 'the war is soon over' caused Asian stock markets to surge, according to multiple reports. South Korea's Kospi increased over 5 percent at opening and was up 4.4 percent. Japan's Nikkei 225 rose 2.1 percent and Topix increased 1.8 percent. In China, Shenzhen rose 1.6 percent, Shanghai up 0.4 percent, and Hong Kong's Hang Seng increased 1.7 percent. Not all markets rallied, however, as Stockholm's stock market started the week with sharp declines, with the OMXS index down 1.7 percent.

US Treasury and currency markets reflected the pervasive uncertainty. Research indicates Treasuries wavered and the dollar marked a second day of declines. The two-year Treasury yield edged higher to 3.81% following solid data on the US labor market and retail sales, according to research.

The White House prepared to address the conflict's conclusion, even as market participants noted recurring patterns. The US leader will hail his military campaign in Iran as a success during a Wednesday prime-time address and stress that the conclusion of operations may come within that time frame, according to a White House official, as reported by research. Some market participants are also wary of a late-week selloff in US stocks, a pattern that has taken hold since the start of the Iran war, research indicates.

Broader economic impacts show how quickly market trends can reverse. Oil prices are down and stocks are up Monday, though such moves have been quick to reverse since the war began. US benchmark crude gained 36 cents to $83.81 per barrel early Wednesday, highlighting the ongoing volatility.

Key unknowns persist that will shape the conflict's trajectory and economic fallout. Beyond the status of the Strait of Hormuz, it is unclear what specific terms are being discussed in the alleged talks between the US and Iran through mediators. The extent of damage to Iran's nuclear and military facilities from Israeli attacks, and how long the alleged halt in weapons development will last, has not been independently verified.