Global equity markets moved higher on Monday while oil softened, as investors reacted to reports that the United States and Iran may be close to a lasting agreement to end a conflict that has lasted more than two months. Market participants parsed a mixture of cautious language from officials and media reports suggesting a draft framework is in place.
In Europe, the pan-regional Stoxx 600 rose 0.9%, pushing toward levels not seen since early March. Major bourses in Germany and France also advanced, though some of that activity appeared to take place in thinner-than-normal conditions because a number of jurisdictions were observing holidays, including the United States and Britain.
U.S. futures climbed as well. By 06:51 ET (10:51 GMT), Dow futures had added 432 points, or 0.9%, S&P 500 futures were up 70 points, or 0.9%, and Nasdaq 100 futures were 409 points higher, or 1.4%. Trading on Wall Street was set to be closed for the day in observance of Memorial Day.
Reports over the weekend quoted a senior White House official as saying a framework deal had been struck between Tehran and Washington. Those accounts suggested the arrangement would include reopening the Strait of Hormuz - a critical maritime corridor off Iran's southern coast through which roughly a fifth of the world’s oil flows.
However, an Iranian foreign ministry spokesperson subsequently said that while a framework of a deal had been reached, a potential memorandum of understanding did not contain specifics on how the Strait of Hormuz would be managed. The spokesperson added that it could not be said an agreement was imminent, even though both sides had reportedly reached conclusions on a range of matters, according to Reuters.
The strait has been all but closed to tanker traffic for weeks, a development that drove oil prices higher and raised concerns about a renewed burst of inflation in countries around the world. Those price pressures led market participants to increase bets that many central banks might react by raising interest rates.
On Monday, oil prices fell sharply. Brent crude slipped below $100 a barrel, though the price remained materially above pre-war levels of roughly $70 a barrel.
The Iranian foreign ministry spokesperson also indicated Tehran would not impose tolls on vessels transiting the strait, a potential reversal of a previously asserted threat that Tehran might seek to establish a steady revenue stream from traffic through the waterway. The spokesperson qualified that statement by saying any services provided would "require a price but should not be presented as tolls."
Media reports further said the draft agreement would include a commitment from Iran not to pursue nuclear weapons and to enter discussions over the future of its uranium enrichment program. The report restated that Tehran has pledged not to develop a nuclear weapon, and that it has broadly rejected U.S. demands to hand over its enriched uranium stockpile.
Iran’s nuclear program and its blockage of the Strait of Hormuz have been central points of concern since the United States and Israel jointly launched an assault on Iran in late February.
On social media, U.S. President Donald Trump said he had told his representatives "not to rush into a deal," and added that the American blockade on Iranian ports would remain in place until an agreement is "reached, certified, and signed." At the same time, U.S. Secretary of State Marco Rubio said on Sunday that Washington would "pursue all diplomatic avenues" with Iran, while warning of "alternatives" should diplomacy fail.
Analysts at ING noted a dampening of earlier optimism in a client note, writing: "There [...] appears to have been some tempering of optimism. Obviously, the big unknown is how the US and Iran will resolve their differences on Iran’s nuclear program."
Market implications were immediate: equities rallied on the prospect of reduced geopolitical risk and easing transport constraints for oil, while energy markets moved off recent highs. At the same time, uncertainty remained around the precise terms of any memorandum of understanding, how any services for vessels in the Strait would be priced, and how the nuclear negotiations would be handled.
Investors and policy makers will likely monitor further developments closely, particularly any clarifications about the management of the Strait of Hormuz, the exact commitments on Iran’s nuclear program, and whether the draft understandings are converted into a signed agreement.
For now, markets have responded to a mix of tentative diplomatic progress and continued caution from key actors, leaving some momentum in equities as oil moves lower from the recent spike.