Markets registered a modest rebound on Tuesday after a report that United States officials had been told the administration was prepared to suspend active military operations against Iran even if the Strait of Hormuz stays largely impassable. According to the report, the president said a complicated effort to reopen the vital waterway could be deferred to a later time.
The account, unconfirmed within broader circles, was enough to lift U.S. futures by nearly 1% in Asian trading and push EUROSTOXX 50 futures about 0.8% higher, reversing earlier losses in the session. Oil futures trimmed gains and moved into negative territory after rising earlier in the day.
Whether the account ultimately proves accurate remains unclear, but any tangible easing of hostilities in the month-old conflict would likely be welcomed by investors. Portfolios have taken a hit this month as assets across equities, bonds and precious metals have slid amid heightened risk. At the same time, market participants are wary that the longer the Strait of Hormuz remains closed, the more persistent elevated energy prices will be.
The waterway has effectively been closed since the outbreak of fighting on February 28. Ship-tracking data showed that two Chinese container ships succeeded in transiting the Strait on Monday on their second attempt after turning back on Friday, signalling only a tentative resumption of movement for a route that remains highly disrupted.
The energy shock has been dramatic. Brent crude futures are on track to record their largest monthly percentage rise in March, gaining in excess of 50% so far. That spike in crude comes alongside gas prices that have jumped by more than 70% over recent weeks, magnifying inflationary pressure in regions dependent on imported energy.
Against this backdrop, attention in Europe will be fixed on flash euro zone consumer price readings due later in the day. Those numbers could offer an early read on how the conflict and its impact on energy markets are filtering through to inflation in the bloc.
European Union energy ministers are also scheduled to meet on Tuesday to coordinate their response to the disruptions in oil and gas markets triggered by the war, according to an internal EU briefing document. The discussions aim to map out a collective approach to managing supply shocks and price volatility.
In currency markets, the U.S. dollar has strengthened sharply and is on pace for its biggest monthly gain since July, having emerged as one of the primary safe havens while the conflict continues. That strength has kept the Japanese yen under pressure around the 160-per-dollar mark, prompting intensified verbal intervention from Japanese officials attempting to defend the currency.
Tokyo also reported preliminary inflation readings for March showing annual core inflation slowed to a near two-year low and remained below the central bank's target for a second consecutive month. Policymakers pointed to fuel subsidies as helping to offset rising raw material costs associated with a weaker yen.
Investors face a number of potentially market-moving releases on Tuesday that could influence sentiment and positioning:
- Euro zone flash inflation data for March
- United Kingdom GDP for the fourth quarter
- UK house price data for March
- U.S. JOLTS job openings data for February
As traders weigh tentative signs of de-escalation against continued disruption to a critical energy chokepoint, markets are likely to remain sensitive to fresh information on both the geopolitical and economic fronts.