Asian Stocks to Rise, Oil Gains on Iran Deadlock: Markets Wrap

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(Bloomberg) — Stocks in Asia were set to rise Tuesday, tracking Wall Street gains as investors remained bullish even as the US and Iran failed to reach terms to end their conflict.

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Equity-index futures for Australia, Japan and South Korea all pointed to advances at the open. Contracts for US equities were little changed after the S&P 500 closed up 0.2% in New York. The Nasdaq 100 climbed 0.3%. Oil jumped 3.4% to over $104 a barrel after President Donald Trump called Iran’s response to a ceasefire proposal “totally unacceptable,” saying the ceasefire with the Islamic Republic was on life support.

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The Treasury market, which has priced out the odds of Federal Reserve rate cuts this year amid the Middle East conflict, saw an increase in yields.

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Solid US earnings have driven a fresh round of upgrades to Wall Street’s year-end targets for the S&P 500, as investors bet corporate profits can extend the rally even with Middle East tensions lingering. Global equities have erased losses linked to the Iran conflict and are pushing back toward record highs, buoyed by expectations that heavy spending on artificial intelligence, particularly across Asia, will anchor earnings growth.

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“Markets are pricing both AI-driven growth and the Middle East supply shock,” said Jean Boivin, head of BlackRock Investment Institute. He said the buildout of AI data centers is offsetting the oil supply shock’s “drag on growth.”

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The fragile ceasefire in the Middle East appeared to waver with Trump calling Iran’s response to his peace proposal a “piece of garbage” and that he “didn’t even finish reading it.”

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Trump didn’t indicate whether the US would resume military attacks on Iran as he previously has threatened if the Islamic Republic’s leadership didn’t agree to his terms. Trump told Fox News earlier on Monday that he’s looking at reviving a plan to escort ships through the vital waterway.

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“An agreement remains elusive and risks remain elevated,” said Mark Haefele at UBS Chief Investment Office. “Both sides remain under pressure to conclude a deal.”

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While the Iran conflict has dragged on, the strength of first-quarter earnings surprises has now led multiple Wall Street strategists to raise their full-year targets on the S&P 500. 

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CFRA upped their target on resilient consumer spending and AI-related investment, while Yardeni Research Inc. now has the highest estimate on Wall Street among strategists tracked by Bloomberg.

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Still, some on Wall Street are also concerned that elevated oil prices and fears about potential shortages could derail the rally. 

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Morgan Stanley warned Monday that the oil market is in a “race against time” and that prices could move sharply higher if the Strait of Hormuz remains closed into June.

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“The biggest concern is we’ve had a buffer on energy prices and there’s arguments about when that stops out. When do we hit the bottom of the tanker and when does this really become an issue,” Sarah Hunt, chief market strategist at Alpine Saxon Woods, said in an interview with Bloomberg Television.