On Friday, global financial markets responded positively after Iran announced the reopening of the Strait of Hormuz to commercial vessels, coinciding with a 10-day ceasefire between Israel and Lebanon brokered by US President Donald Trump [1][2]. Iranian Foreign Minister Abbas Araghchi stated on X that the passage would be 'completely open for the remaining period of ceasefire, on the coordinated route as already announced by Ports and Maritime Organisation of the Islamic Rep. of Iran' [1][2]. However, while Trump claimed Tehran had agreed to never close the waterway again, Iran's statement was conditional, and Tasnim news agency reported that vessels tied to hostile nations would still be barred, with the possibility of closure if the US naval blockade persists [2]. Trump also emphasized that the US naval blockade would remain 'in full force and effect' until a final agreement is reached [1][2].
The announcement triggered a broad risk-on rally in US equities. The Dow Jones Industrial Average surged over 1,000 points to finish just below 49,800, the S&P 500 gained 1.5% to surpass 7,100 for the first time, and the Nasdaq Composite climbed 1.7%. The Russell 2000 led with a 2.2% advance, highlighting the breadth of the move [2]. Stocks most exposed to Middle East disruptions, such as Boeing (BA) and Royal Caribbean (RCL), rebounded sharply, with BA up 3% and RCL up 10%. Amazon (AMZN) and Airbnb (ABNB) also saw gains [2].
Oil markets saw a dramatic reaction, with West Texas Intermediate (WTI) futures dropping nearly 10% according to [1] and 14% according to [2], while Brent crude fell 10% to above $89 per barrel [2]. The rapid decline reflected the unwinding of the risk premium that had built up during the recent escalation. The US Dollar Index (DXY) fell to its lowest level since February 27 before partially recovering, remaining on track for a third consecutive weekly decline and trading around 98.00 after rebounding from a low near 97.63 [1]. The Swiss Franc (CHF) strengthened against the US Dollar, with USD/CHF down 0.46% on the day and near one-month lows [1].
The easing of oil prices helped reduce inflation concerns, pushing US Treasury yields lower and prompting markets to price in a higher probability of Federal Reserve rate cuts by December, compared to a 70% probability of a hold the previous day [1]. San Francisco Fed President Mary Daly commented that rates could be left unchanged, but policymakers would need to raise rates if inflation reaccelerates. She also noted that a quicker end to the conflict could open the door for rate cuts [1][3]. Daly emphasized a 'wait and see' approach, observing whether higher oil prices spill into other goods and services, and highlighted that the outlook depends on the duration of the oil price rise and the persistence of the conflict [3].
Looking ahead, a second round of US-Iran peace talks is expected to resume over the weekend, with markets optimistic about a potential resolution, though unresolved differences over nuclear terms remain a significant hurdle [1].
CONCLUSION
The reopening of the Strait of Hormuz and the Israel-Lebanon ceasefire sparked a strong rally in equities and a sharp drop in oil prices, reflecting improved risk sentiment and easing inflation fears. While markets are optimistic about further diplomatic progress, ongoing uncertainties regarding the US naval blockade and Iran's conditions keep headline risk elevated. The Federal Reserve remains cautious, with future policy moves hinging on the persistence of lower oil prices and the conflict's resolution.