Global financial markets experienced a strong risk-on session, primarily driven by optimism surrounding ongoing US-Iran negotiations and the potential reopening of the Strait of Hormuz, which has led to lower oil prices and improved investor sentiment [1][3]. Danske Bank's research team highlighted that cyclical growth and momentum stocks outperformed, while defensive sectors and energy lagged behind, with energy ranking at the bottom of sector performance [1]. Asian equities continued the positive trend, notably with South Korea up 8% at the time of reporting, underscoring the broad-based market rally [1].
US President Donald Trump stated that negotiations with Tehran are in the final stages, but cautioned that the situation could escalate quickly if no deal is reached [2][3]. Iranian President Masoud Pezeshkian affirmed openness to a diplomatic solution, yet warned against coercion, stating, “Forcing Iran to surrender through coercion is nothing but an illusion” [2][3]. Iran’s Revolutionary Guards also issued a warning that any repeated aggression would result in a regional war extending beyond the current area [2].
The improved market mood led to the US Dollar failing to build on previous gains, with the USD Index holding steady above 99.00 early Thursday, while US stock index futures traded marginally lower [2]. The Federal Reserve's policy meeting minutes indicated that inflation risks remain tilted to the upside, particularly due to escalating Middle East tensions, rising energy prices, and lingering tariff pressures [2].
WTI crude oil prices edged lower, trading around $98.20, as optimism about a US-Iran deal increased expectations that crude supplies could soon flow out of the Strait of Hormuz [3]. However, traders remain cautious, as any escalation in tensions could quickly reverse the downward trend in oil prices [3]. US crude oil inventories fell by 7.864 million barrels for the week ending May 15, compared to a decline of 4.306 million barrels in the previous week, with market consensus expecting a decrease of 2.9 million barrels [3].
CONCLUSION
Market optimism around a potential US-Iran deal and reopening of the Strait of Hormuz has triggered a risk-on rotation in equities and pushed oil prices lower. While cyclical sectors and Asian equities have surged, energy stocks lagged, and traders remain cautious about possible escalation. The outcome of the negotiations will be crucial for future market direction, especially for oil prices and cross-asset positioning.