Overview
Growing signs that talks could produce a deal to end the Iran war and reopen the Strait of Hormuz prompted a risk-on move in markets on Monday. Equity benchmarks in Tokyo and Taipei reached record highs, while oil prices and the U.S. dollar moved lower as investors priced in a reduced immediate geopolitical premium.
Market backdrop and political signals
Despite the market rally, doubts remain. U.S. President Donald Trump dampened prospects of a rapid breakthrough, saying he had instructed his representatives not to rush into any deal with Iran even as pressure mounts to reach an agreement. That mixed messaging has left investors unsettled - broadly hopeful that a resolution will come, but uncertain about timing and terms.
Liquidity and trading conditions
Market participants also faced thinner liquidity than usual with public holidays keeping markets in the U.K. and U.S. closed. Traders said the combination of tentative headlines and low turnover could amplify price moves and increase sensitivity to fresh developments.
Shipping developments
Sentiment received further support from shipping data showing two liquefied natural gas tankers exiting the Strait of Hormuz, and from a supertanker carrying Iraqi crude for China that left the Gulf on Saturday after being stranded for nearly three months. Those movements were interpreted as early signs that maritime flows could be resuming.
Energy, inflation and rate outlook
At the same time, analysts cautioned that even if a deal is reached the path back to pre-war oil price levels is unlikely to be immediate. The broader energy supply chain will require time to recover, meaning inflation pressures are unlikely to abate quickly and calls for higher-for-longer interest rates remain.
Reflecting that shift in expectations, traders are now fully pricing in a 25-basis-point increase from the U.S. Federal Reserve in January 2027. That represents a notable reversal from market pricing before the conflict, when two rate cuts this year had been expected.
What to watch
The key development likely to influence markets is progress in U.S.-Iran talks, which market participants will be monitoring closely for signs of tangible agreement or renewed setbacks.