Stocks Futures Drop, Oil Gains on Escalation Talks: Markets Wrap

Stock information displayed at the Australian Securities Exchange (ASX) in Sydney, Australia, on Monday, May 5, 2025. After winning a majority in parliament with the strongest mandate since World War II, Prime Minister Anthony Albanese's center-left government now has the best chance in years to take the hard steps economists have called for to ignite growth. Photo by Brendon Thorne /Bloomberg

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(Bloomberg) — A rally in equities eased, crude oil jumped and gold extended its slump as fragile optimism around a potential de-escalation in Middle East tensions gave way to renewed caution.

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Equity-index futures for the S&P 500 Index fell 0.5% and European shares were set to drop 0.8% at the open as sentiment weakened after the Wall Street Journal reported that US allies in the Persian Gulf are inching toward joining the fight against Iran. Adding to the downbeat tone, Iran’s deputy speaker ruled out talks with the US, echoing similar comments from other officials in the regime.

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As sentiment soured, Brent jumped 4% to about $104 a barrel. The Bloomberg Dollar Spot Index advanced 0.3% and yields on the two-year Treasury rose four basis points on expectations that higher oil prices may boost the chances of an interest-rate hike by the Federal Reserve. Gold slid 1.5%, set for its longest losing daily streak on record, and Asian stocks rose 1.6%.

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The shift marked a reversal from Monday’s relief rally, when Wall Street stocks surged and oil slumped after President Donald Trump signaled a delay in strikes on Iranian energy assets. The conflict showed few signs of easing and the Strait of Hormuz — crucial for the flow of oil from the Middle East — remained effectively shut with only a trickle of vessels making their way through.

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Tuesday’s moves suggest investors are dialing back optimism that followed Trump’s signal of a delay in strikes, which was seen as a potential step toward de-escalation in the Middle East. Renewed tensions risk keeping oil prices elevated, potentially stoking inflation and reinforcing expectations that policymakers may delay easing or even tighten policy further.

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“I will not put too much hope on this bet for now until I see Iran’s next course of action in this war,” said Gerald Gan, chief investment officer at Reed Capital Partners in Singapore. Gan said he has increased his cash exposure, while adding put options on the S&P 500 Index.

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What Bloomberg’s Strategists Say…

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“Brent opened above $100 a barrel amid signs that conflict in the Middle East is far from over. If there are further signals that send crude prices noticeably higher, then another day of whiplash across assets would be the result.”

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— Garfield Reynolds, MLIV Asia Team Leader. Click here for the full analysis.

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Headlines about the Middle East continue to sway markets with traders staying focused on the Hormuz Strait. Since the conflict began, disruptions to traffic through the waterway have driven sharp price swings and heightened inflation risks, leaving progress in US-Iran talks pivotal to stabilizing energy markets and broader financial conditions.

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Trump told reporters on Monday that he was holding off on striking Iranian energy infrastructure for five days, citing “major points of agreement” with the country. The abrupt shift caught traders off guard as there was little sign of diplomatic progress before the US president’s social media post.