Global Stocks Rally as Hopes for Iran Peace Deal Lift Investor Confidence

BY COMFORT OGBONNA

Global stock markets surged on Monday while oil prices and the U.S. dollar weakened as investors grew increasingly optimistic that the United States and Iran could eventually reach an agreement to end the ongoing conflict that has disrupted global energy supplies for months.

The improving sentiment across financial markets came despite lingering uncertainty over when the Strait of Hormuz — one of the world’s most important energy shipping routes — would fully reopen. Traders remained cautious as negotiations between Washington and Tehran continued to face significant obstacles, even as diplomatic rhetoric became more positive.

The nearly three-month-long conflict in the Middle East has shaken global markets, sending oil prices sharply higher and intensifying fears about inflation, interest rates, and global economic growth. Tehran’s effective closure of the Strait of Hormuz earlier in the conflict disrupted nearly one-fifth of the world’s oil and liquefied natural gas shipments, triggering a major energy shock that affected economies worldwide.

Investor confidence improved after U.S. President Donald Trump said over the weekend that the United States and Iran had “largely negotiated” a memorandum of understanding on a potential peace agreement that could eventually reopen the strategic waterway.

However, optimism was tempered after Trump later said he had instructed his representatives not to rush negotiations, signaling that several difficult issues still remain unresolved.

Market participants said investors have increasingly shifted their focus away from exact timelines and instead are responding to the broader tone surrounding diplomatic efforts.

Chris Weston, head of research at Pepperstone, said traders are paying closer attention to whether the overall direction of negotiations continues moving toward a settlement.

“The tone has been consistently towards some sort of resolution,” Weston said. “We’ve become very patient for a resolution deadline.”

European stock futures climbed about 1%, pointing to a strong trading session ahead, while Nasdaq futures gained 1.4% and S&P 500 futures rose 1%. Trading activity was expected to remain relatively light because financial markets in both the United States and the United Kingdom were closed for holidays.

Oil prices, which have become the main driver of broader market sentiment throughout the conflict, dropped sharply as hopes for improved supply conditions increased.

Brent crude futures fell roughly 6% to around $97.75 per barrel, while U.S. West Texas Intermediate crude dropped nearly 6% to approximately $90.87 a barrel. Both contracts touched their lowest levels in two weeks as traders scaled back concerns about immediate supply shortages.

Despite the sharp decline, analysts said oil prices are still likely to remain elevated for an extended period, even if diplomatic progress continues. Supply chain disruptions, damaged energy infrastructure, and shipping challenges across the region are expected to take months to fully resolve.

Barclays last week maintained its average Brent crude forecast for 2026 at $100 per barrel, although the bank warned that risks remain tilted to the upside because of continued geopolitical uncertainty.

Currency markets also reflected improving investor sentiment. The euro strengthened by 0.33% to $1.1646, while the Japanese yen gained ground against the U.S. dollar as investors moved away from the safe-haven greenback.

Asian stock markets posted especially strong gains. Japan’s Nikkei index surged 3%, climbing above the 65,000 level for the first time ever, while Taiwan’s stock market also reached a record high. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1%, reflecting widespread investor optimism across the region.

Interestingly, global equity markets have largely managed to withstand the geopolitical tensions that dominated headlines for months. Investors instead continued focusing heavily on strong corporate earnings and the ongoing boom in artificial intelligence-related companies, both of which have supported stock valuations despite broader economic concerns.

At the same time, the conflict has significantly altered expectations for global interest rates as rising energy prices fuel fears of persistent inflation.

Traders are now fully pricing in a 25-basis-point interest rate hike from the U.S. Federal Reserve in January 2027. This marks a major shift from expectations earlier this year, when investors anticipated two rate cuts during 2026 before the conflict erupted in late February.

The rise in oil and fuel prices has complicated the outlook for central banks around the world. Policymakers now face growing pressure to balance slowing economic growth with the risk that elevated energy costs could keep inflation stubbornly high.

The U.S. 30-year Treasury bond yield, often viewed as an important measure of geopolitical and fiscal risk, briefly climbed last week to its highest level since July 2007 before easing slightly. Although cash Treasury trading was closed on Monday, futures for long-dated bonds moved higher.

Additional concerns emerged after data released on Friday showed U.S. consumer sentiment fell to a record low in May. Analysts linked the decline largely to rising gasoline prices caused by the Middle East conflict, which has increased pressure on household budgets and heightened concerns about affordability.

The economic uncertainty comes as Kevin Warsh officially assumed office as chair of the Federal Reserve, placing him at the center of one of the most challenging monetary policy environments in years.

Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management, said Warsh may initially look beyond short-term inflation spikes caused by energy costs. However, he warned that the possibility of future interest rate hikes will continue growing if inflation keeps accelerating.

Investors are now closely watching diplomatic negotiations between Washington and Tehran, as well as developments in energy markets, for signals about whether the global economy is moving toward greater stability or another period of volatility.

While markets welcomed the possibility of a peace agreement, analysts cautioned that the situation remains fragile and that any setback in negotiations could quickly reverse the recent gains seen across global stocks and financial markets.