Stocks Surge as Oil and Dollar Decline Amid Optimism Over Middle East Peace Talks

Global Markets React to Iran Tensions as Strait of Hormuz Remains Closed

SINGAPORE, May 25 (Reuters) - U.S. stock futures rose on Monday as the prospect of a deal to end the Iran war buoyed risk appetite, despite a lack of clarity over when the Strait of Hormuz would reopen. The nearly three-month war in the Middle East has sent energy prices soaring and rewired global rates outlook due to worries over inflation, as Tehran effectively shut down the strait through which much of the world's energy supply passes.

The Strait of Hormuz is a critical waterway, carrying one-fifth of global oil and liquefied natural gas shipments. U.S. President Donald Trump played down hopes of an imminent breakthrough, saying on Sunday that he had told his representatives not to rush into any deal with Iran. This comes after Trump said on Saturday that Washington and Iran had "largely negotiated" a memorandum of understanding on a peace deal that would reopen the waterway.

Oil prices hit two-week lows to kickstart the week, with Brent crude futures down over 4% to $98.83 a barrel, while U.S. West Texas Intermediate CLc1 was at $92.03 a barrel, also down over 4%. The euro was up 0.37% at $1.1646, while the Japanese yen firmed to 158.85 per U.S. dollar in early trading as the safe haven dollar gave up some of its recent gains.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Market analysts expect the market to embrace more risk on Monday but not to surge higher until there is confirmation that the Strait of Hormuz will reopen. "We will need to see an agreement out in place in the coming sessions as we know there are still some major sticking points," said Nick Twidale, chief market analyst at ATFX Global. Japan's Nikkei is poised for a strong start to Monday's session.

The most important issues for financial markets are when the Strait of Hormuz will re-open, Commonwealth Bank of Australia strategists said in a note. "Under what conditions the Strait will re-open and how long it will take to repair production facilities and infrastructure to ramp up production of energy and other goods to pre-war levels," they said.