Expectations of a ceasefire between the US and Iran are driving a recovery in risk appetite, as markets bet on an extension of the truce and a potential peace agreement. The risk premium driven by the conflict is gradually fading. Global financial markets are reacting positively to the easing of geopolitical risks, with global stock indices hitting record highs. The MSCI World Index has risen for ten consecutive days, setting a new record, while equities in Asia, Europe, and the United States have moved broadly higher.
Meanwhile, oil prices have retreated and the US dollar has weakened. The global crude benchmark, Brent, has stabilized around $95 per barrel, well below the nearly $120 peak seen last month. As tensions in the Middle East ease, the US dollar, which had previously served as a safe-haven asset during the conflict, is weakening. The Bloomberg Dollar Spot Index is on track for a ninth consecutive daily decline, which would mark its longest losing streak since December 2006.
In other asset classes, gold and silver prices have advanced, US Treasury yields have edged lower, and the Australian dollar and Japanese yen have strengthened. Emerging market and Chinese stocks have also rebounded. The MSCI World Index, which had fallen as much as 9% from the outbreak of hostilities to its low on March 30, has now fully recovered those losses as markets anticipate a final peace deal between the US and Iran.
Furthermore, renewed investor enthusiasm for technology stocks has contributed to the market's reversal from last month's sell-off, which had pushed several major indices into technical correction territory. According to informed sources, the US and Iran are considering extending the truce agreement, originally set to expire on Tuesday, by two weeks to allow more time for negotiations aimed at a peace deal. The sources indicated that mediators from both sides are attempting to arrange technical consultations to resolve the most contentious issues, including the reopening of the Strait of Hormuz and Iran's nuclear enrichment activities.
The alleviation of geopolitical tensions is shifting global financial markets from a "risk-off" to a "risk-on" mode. Investors are refocusing on corporate earnings and economic growth, while short-term inflation concerns have moderated due to the decline in oil prices.
Market strategist Mark Cranfield commented, "Major Asian indices are experiencing another active trading session. As the Iran war recedes from view, investors are shifting their attention back to the profitability of large corporations. Additionally, the tug-of-war between short-term inflationary pressures and medium-term growth risks has left the bond yield curve in a consolidating pattern, providing another supportive factor for equities."
Matthew Haupt, a portfolio manager at Wilson Asset Management, stated, "The market is reverting to pre-war fund flows and positioning structures because, even though the conflict isn't resolved, the market is already treating it as past history. Going forward, the market will need fresh catalysts to drive further gains, as the current systematic buying appears largely complete."
Given the situation, the core variables market participants are monitoring have also shifted. Key focuses now include progress in US-Iran negotiations, specifically whether the ceasefire will be extended, the outcome of technical talks on Strait of Hormuz navigation and Iran's nuclear program, and the trajectory of oil prices. As a crucial input for inflation and global growth, whether oil remains below $100 per barrel is being closely watched. The strength of the US dollar is another focal point, with its role as a safe-haven asset reversing; markets are assessing its potential for further depreciation. Attention is also turning to the resilience of corporate earnings, particularly as leadership from tech stocks shifts the focus from macro risks to micro-level fundamentals. Regarding inflation and interest rate expectations, the pullback in oil prices has eased near-term inflationary pressures, leading to a flatter yield curve that supports equity markets.
The current market phase involves a rapid unwinding of geopolitical risk premiums, with sentiment leaning optimistic. However, future direction is highly dependent on substantive progress in US-Iran negotiations and the dynamic balance between oil prices, inflation, and central bank policies. Investors should remain alert to the risk of a pullback triggered by "exhausted positive news" or a reversal in negotiations.
Ed Yardeni of Yardeni Research noted, "Historically, geopolitical crises have often presented excellent buying opportunities. That is precisely the situation we find ourselves in now."
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