Global markets continued their risk appetite recovery on Tuesday, with traders betting that there remains an opportunity for the United States and Iran to return to the negotiating table, thereby alleviating the worst-case scenarios surrounding the Strait of Hormuz and Middle East energy flows. Reuters, citing multiple sources, reported that U.S. and Iranian teams might return to Islamabad this week for further talks. President Trump also stated that Iran wishes to reach a deal but will not accept any outcome that allows Tehran to possess nuclear weapons. This development pushed down international oil prices and led to a general rise in global stock markets.
Asset Performance
The European market was the first to reflect this change. The Euro STOXX 600 index rose to a one-month high on Tuesday, led by industrials, technology, and banking sectors, as investors bet that if the diplomatic process continues, the upward pressure on energy costs impacting European company margins will ease. In the U.S. market, Reuters reported that Wall Street surged that day, with the S&P 500 further closing in on recovering all losses since the conflict began. The Nasdaq led the gains, with technology and consumer discretionary sectors performing the strongest.
Dollar and Interest Rates
The cooling of safe-haven demand also weakened the dollar. Reuters data shows that the dollar index fell for the seventh consecutive trading day, hitting 98.05, the lowest level since early March. The pound rose to $1.3548, returning to levels near those before the outbreak of the Iran conflict. Meanwhile, the U.S. March Producer Price Index rose only 0.5% month-on-month, below the market expectation of 1.1%, tempering investor bets on further rate hikes by the Federal Reserve, and U.S. Treasury yields also edged lower.
Trading Logic
This rebound seems more like a pricing on "no further deterioration in the situation" rather than a confirmation of a comprehensive resolution. Reuters' global market review pointed out that investors are currently seizing on the signal that the diplomatic doors have not yet closed. However, if follow-up negotiations again face setbacks, oil prices, the dollar, and safe-haven assets may swiftly regain risk premiums.
