The US-Iran agreement triggers the market: Crude oil prices collapse by 4%, South Korean stocks skyrocket triggering circuit breakers, and even the expectations of a rate hike by the Federal Reserve have decreased.

On Monday (June 15), in the early Asian trading session, as news of a peace agreement between the United States and Iran boosted market risk appetite and eased global inflationary pressures, global stocks, bonds, currencies, and various assets reacted sharply to the news. The U.S. WTI crude oil fell nearly 5%, while U.S. stock futures, Japanese and Korean stock markets, and gold and silver all rose across the board. Traders also reduced their bets on the Fed raising interest rates this year. The good news came just half an hour before the opening of the U.S. futures market. U.S. President Trump announced on social media on June 14 that an agreement between the U.S. and Iran has been completed, authorizing the opening of the Strait of Hormuz and the immediate lifting of related U.S. naval blockades. Trump stated, "I hereby authorize the full opening of the Strait of Hormuz and the immediate lifting of the U.S. naval blockade. Ships from around the world, start your engines and let the oil flow!" Trump also stated on the same day that with the U.S.-Iran agreement scheduled to be signed on June 19, the Strait of Hormuz will reopen for demining operations. Pakistan's Prime Minister Shahbaz Sharif confirmed on social media early Monday that the U.S. and Iran have reached an agreement. "After intensive negotiations, we are pleased to announce that a peace agreement between the U.S. and Iran has been reached. Both parties have announced an immediate and permanent cessation of military operations on all fronts (including within Lebanese territory). A formal signing ceremony will be held in Switzerland on June 19," Sharif said. In the early hours of June 15, the Iranian Supreme National Security Council announced that Iran and the U.S. have finalized the memorandum of understanding on "ending negotiations on war" and plan to sign it formally on June 19. According to the agreement reached, all war and military operations on all fronts, including in Lebanon, will "immediately and permanently cease" from the evening of the 14th; at the same time, the maritime blockade against Iran will be immediately and completely lifted. The U.S.-Iran agreement ignited the global markets Although the markets had begun pricing in the possibility of a U.S.-Iran agreement at the end of last week, the confirmation of this agreement on the same day still excited many traders. The news that the Strait of Hormuz will be reopened soon caused Brent crude oil to dive 4% to $83.80 per barrel after opening, well below the high of $126.41 per barrel touched last month. U.S. WTI crude oil also fell 4.3% to $81.23 per barrel, gradually approaching the pre-war level of $67 per barrel. Against the backdrop of rising risk assets, S&P 500 index futures rose 0.9%, while Nasdaq futures surged by 1.62%. The Japanese and Korean stock markets also quickly jumped after the opening. The Nikkei 225 index broke through the 68,000 mark, soaring more than 4% intra-day. The KOSPI index in Korea surged by 5%. The Korea Exchange triggered a circuit breaker for the KOSPI index due to a 5% rise in KOSPI 200 futures, pausing program trading for 5 minutes. The news of the U.S.-Iran agreement also temporarily eased the nerves of global market investors ahead of several central bank meetings to be held this week, as the decline in oil prices and the reopening of the Strait of Hormuz are expected to relieve the pressure to tighten policies to contain energy-driven inflation expectations. Central banks in the U.S., UK, Japan, Australia, Switzerland, Sweden, Norway, and Russia will hold meetings this week, with the Bank of Japan expected to raise interest rates. The hawkish position of the new Fed Chair Powell at his first policy meeting is also highly anticipated. As Fed officials' hawkish stance on inflation risks increases, the market will closely monitor policy statements, economic forecasts, and press conference content to look for any signals of the Fed abandoning its dovish stance. In terms of the reaction in the fixed income market after opening on Monday, investors in the interest rate market quickly cut their expectations of a Fed rate hike this year, with December rate futures rising rapidly. Yields on various maturities of U.S. Treasury bonds generally fell, with the 2-year Treasury yield, which is most closely related to Fed rate expectations, dropping by 6.5 basis points to 4.021%; the benchmark 10-year Treasury yield fell by 6.4 basis points to 4.418%. The decline in U.S. Treasury yields and the improvement in overall risk appetite also pushed the U.S. dollar lower against non-U.S. currencies, with the euro rising by 0.4% against the dollar to 1.1607. The dollar fell by 0.2% against the yen to 159.93, while the pound rose by 0.3% against the dollar to 1.3446. How do industry institutions view the U.S.-Iran agreement? Many investment bank professionals have expressed their views on the significant positive news of the U.S.-Iran peace agreement reached early Monday morning to reopen the Strait of Hormuz and lift the U.S. blockade on Iran. Jason Wong, the senior market strategist at the New Zealand Bank in Wellington, said, "Given the widespread anticipation of this outcome, I think the market reaction should be fairly well contained. The situation you are seeing on your screens today - we may well be at the end of the conflict, which is a good sign, and hopefully, we can put this behind us and focus on macroeconomic fundamentals... The market will perceive that conditions will gradually return to normal. The risk is no longer hanging over the market." Kristina Clifton, senior currency strategist at the Commonwealth Bank of Australia (CBA) in Sydney, said, "The reopening of the Strait of Hormuz is clearly good news for the global economy. However, we have always believed that it will take some time for oil and natural gas supplies to fully recover. The market will watch for shipping recovery conditions... as well as how quickly production can return to normal." Clifton pointed out that energy prices may not return to pre-conflict levels for some time... and shipping returning to normal will also take some time. Sean Callow, senior foreign exchange analyst at ITC Markets, said, "The lack of detail in the agreement, especially regarding freedom of navigation, remains a concern, but given the current surge in risk appetite, this should not be a constraint on today's market movements." "The prospect of sustained energy price declines, as central banks are about to make a series of policy decisions, has changed the discussion," Callow noted. On the foreign exchange front, Nick Twidale, Chief Market Strategist at ATFX Global in Sydney, said, "I think the U.S. dollar will weaken in the coming days. Risk currencies like the Australian dollar and the yen may see slight gains. But I don't think there will be dramatic volatility. The market will take a wait-and-see approach, focusing on how quickly the strait can reopen and when oil supplies can truly return to normal. This will certainly take months rather than weeks." Chris Weston, Head of Research at Pepperstone, said, "The agreement looks credible and is enough to allow the market to continue moving forward. With some structural changes already occurring in freight and logistics at the Strait of Hormuz and refineries damaged, we are now focusing on the growth in shipping at the Strait." Weston said, "I think many other risk assets will be shaken by other factors, such as demand recovery, renewed market focus on corporate earnings, and the policy expectations of major central banks this week. I believe the current trading strategy is to short volatility. This will provide upside for risk assets... further declines in long-term bond yields will undoubtedly benefit stock market risk appetite." This article is reproduced from "Cai Lianshe," written by Xiao Xiang; GMTEight Editor: Feng Qiuyi.