Hopes for Iran deal fuel rally in stocks, drop in oil

Markets:

• US 10-year yield rose 2.6 basis points to 5.16%.
• WTI crude oil fell $2.15 to $92.44 per barrel.
• Gold gained $8 to $4286.
• The Japanese yen outperformed, while the New Zealand dollar lagged.
• The S&P 500 advanced 0.5%.

Verbal intervention on the yen was the primary market-moving event, pushing USD/JPY more than 150 pips lower on the day. No actual intervention followed, leaving the market in a standoff. Traders were cautious about the possibility of official USD/JPY selling late on Friday, echoing a similar move earlier this year. However, no late buyers emerged, and there remains the risk of intervention when trading resumes on Sunday.

The dollar edged lower as inflation concerns abated, driven by fresh headlines on Iran peace negotiations. Despite widespread skepticism, oil dropped more than $3 from its highs, suggesting some market participants are convinced. This may be the last major diplomatic push by the US, with the midterm elections acting as a deadline and Republican polling suffering from inflation and the unpopular war.

Equity markets saw profit-taking in this month's top performers such as Meta and Intel, while laggards like Booking, CVS and PayPal posted strong gains. This appeared to be degrossing rather than a shift in economic outlook, yet it was sufficient to generate a solid day of gains despite early volatility. Iran hopes also contributed, alongside a pullback in 10-year yields from their 5.20% highs.