Asian equities rallied on Tuesday and global energy markets steadied after U.S. President Donald Trump delayed a planned bombing of Iran’s power grid and added five days to a previous ultimatum aimed at reopening the Strait of Hormuz. The decision eased short-term concerns about a major disruption to oil flows and set off a rapid repositioning across risk assets, currencies and bond markets.
Markets experienced a sharp reversal after Trump extended the deadline he issued on Saturday, which had required Iran to reopen the strait within 48 hours. The president said the extension was prompted by productive talks with unidentified Iranian officials; Tehran has denied those discussions took place. Traders interpreted the move as limiting the immediate probability of a major energy shock and quickly adjusted positions.
"It’s a negotiating tactic... I don’t think that the U.S. administration wants to see oil at $150 because they themselves provoked it," said Rajeev De Mello, chief investment officer at GAMA Asset Management. That view helped feed the initial market response: crude futures fell sharply and share indexes rallied, while the dollar and government bond yields moved lower.
Most of the momentum from the reversal carried into Asian trading on Tuesday. MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1.3%. Australian equities rose 0.7%, and Japan’s Nikkei advanced by more than 2%, recovering a substantial portion of Monday’s 3.5% drop. U.S. futures were largely unchanged following a higher close in Monday’s cash session.
Oil prices, which had plunged about 10% in the prior session, were somewhat firmer on Tuesday but remained volatile as the conflict in the Middle East continued to weigh on investor sentiment. Brent crude futures were up 1% at $100.94 a barrel, while U.S. crude gained 1.9% to $89.84. Market participants continued to debate whether the deadline extension signaled genuine progress toward de-escalation or merely delayed further uncertainty.
"Markets are not out of the woods," said Chris Weston, head of research at Pepperstone. "Price action could remain choppy into Friday’s revised deadline... The key question is whether participants see this as a genuine extension that brings a deal closer, or simply a delay that prolongs uncertainty."
The prospect of a protracted conflict kept investors cautious even as risk appetite improved. Yields on U.S. Treasuries steadied after suffering a sharp fall overnight, mirroring a broader decline in global bond yields as markets trimmed expectations for aggressive central bank rate increases this year.
The two-year U.S. Treasury yield was little changed at 3.8498%, after falling more than 6 basis points in the previous session. The benchmark 10-year yield was last at 4.3400%. Market pricing has largely removed the small chance of a Federal Reserve rate hike this year, with traders instead expecting policy to remain on hold.
Expectations for other major central banks have also been revised. The Bank of England is now seen as likely to raise rates twice this year, down from four previously priced in by markets, while expectations for hikes from the European Central Bank have been trimmed as well.
"Unless the Strait (of Hormuz) is reopened very quickly, we are still more likely than not to see higher interest rates and a meaningful increase in oil importers’ costs in the coming weeks," said Kit Juckes, head of FX strategy at Societe Generale.
Currency markets reflected a shift toward risk assets and away from safe havens. The U.S. dollar remained under pressure after falling on Monday as improved risk sentiment lowered demand for the greenback. The euro last traded at $1.1603, having gained 0.4% overnight. Sterling held near a two-week high reached on Monday and was last at $1.3420. The dollar was up 0.04% against the yen at 158.54.
Data released on Tuesday added a geopolitical layer to central bank considerations. Japan’s core consumer inflation rate fell to 1.6% in February, dipping below the Bank of Japan’s 2% target for the first time in nearly four years. That development complicates the BOJ’s ability to argue for further rate increases at a time when other central banks are confronting different inflation paths.
Safe-haven gold moved higher alongside the shifts in risk sentiment, with spot gold up 0.6% to $4,431.65 an ounce. Overall, market participants remain sensitive to further developments on the diplomatic and military fronts, leaving the path for energy prices and interest rates subject to continued volatility.
Summary: Asian stocks rose and oil pared earlier losses after President Trump delayed a planned attack on Iran’s power grid and extended a Strait of Hormuz ultimatum. The extension, described by the White House as prompted by productive talks that Tehran denies, eased immediate energy shock fears and pushed equities higher while bond yields and the dollar fell. Despite the relief rally, analysts cautioned the situation remains fragile and markets could stay volatile through the revised deadline.