US-Iran Talks Stalemate Expected to Impact Risk Assets on Monday

Market Sentiment Takes a Hit as US and Iran Talks End Without Deal

The US and Iran's failure to reach a peace deal over the weekend is expected to weigh on market sentiment and lift demand for safe-haven assets on Monday, according to analysts. The two sides couldn't reach an agreement during talks in Pakistan, which is likely to disappoint investors who had added exposure to risk assets last week after the countries announced a ceasefire.

The dollar is expected to rise on Monday, after falling 1.4% last week, along with oil prices, analysts said. Equities broadly should slide. The immediate outlook for Treasuries is more mixed, as safe-haven flows joust with inflation concerns. Crude oil markets will take their cue from persistent constraints in flows through the Strait of Hormuz.

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Gold may catch a bid, with analysts noting that the scale of market reaction may be limited if investors take the view that the talks represent only a temporary setback for hopes of peace.

Kyle Rodda, analyst at Capital.com Inc., said that the key question for Monday is whether markets interpret this as a temporary breakdown in negotiations or a structural collapse of the ceasefire framework. That distinction will determine whether the risk-off move fades quickly or extends further.

Charu Chanana, chief investment strategist at Saxo Markets, said that the talks ending without a deal is a setback for markets, meaning the relief trade is likely to fade. Oil may see fresh gains, risk sentiment takes a hit again, and Hormuz is likely to remain a live choke-point risk even if it is not fully shut.

Fiona Lim, senior strategist at Malayan Banking Berhad, said that there could be some disappointment but this is not completely out of expectations. The USD may see further buoyancy when markets open tomorrow. Certain Asian currencies, notably net importers of energy — KRW, PHP, JPY, THB — had started to weaken into the weekend on Friday and could remain under pressure this week.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Kenneth Goh, director of private wealth management at UOB Kay Hian Pte, said that the failure to reach a deal keeps a geopolitical risk premium in the market. Historically, this type of breakdown has seen markets lean into safe-haven assets at the open, and that has meant a bid in both the dollar and Treasuries.

Dilin Wu, strategist at Pepperstone Group Ltd, said that the failure to reach an agreement leaves uncertainty firmly in place. In the very near term, a stronger dollar alongside modestly lower yields is a fairly reasonable pricing outcome. The reaction in Treasuries is likely to become more complex after the initial headline response fades.

Nick Twidale, chief market analyst at AT Global Markets Australia Pty, said that I would think we will see oil open higher alongside the dollar on Monday due to risk-off. Stocks are expected to take a significant hit and yields to push higher. The disappointment that the Strait of Hormuz was still seeing less than 10% of normal traffic was key to me in the last few days.

Dionissios Kontos, co-founder of Meyka AI, an artificial intelligence-driven market analysis firm, said that the nuance is worth watching: Iran's foreign ministry left the door open for further talks, so this isn't a full collapse, just prolonged uncertainty. That matters for how violent or measured Monday's reaction is.

On sectors, energy is probably the loudest story Monday. Hormuz is still effectively blocked and with no deal, oil supply uncertainty stays elevated. Defence names could see some interest but a lot is already priced in. Shipping and airlines remain under pressure, and growth/consumer discretionary could face risk-off rotation headwinds.