To The Moon

Signals of a potential agreement between the United States and Iran to reopen the Strait of Hormuz have pressured oil prices downward, boosting market risk appetite and leading to widespread gains in emerging market stocks and currencies on Monday. The MSCI Emerging Markets stock index rose 1.5%, marking its third consecutive session of gains and bringing its year-to-date advance to nearly 22%. An index tracking emerging market currencies also increased by approximately 0.3%. US stock cash markets were closed on Monday for the Memorial Day holiday. Officials from both the US and Iran have indicated that the two countries are close to reaching an interim agreement. US President Trump stated on Monday that negotiations are "progressing well." He also urged countries like Saudi Arabia and Qatar to join the Abraham Accords, further strengthening market expectations for an imminent deal. However, negotiations on certain issues are still ongoing. Marco Oviedo, a senior strategist at XP Investimentos, noted, "Against the backdrop of falling oil prices and thin liquidity due to the US holiday, emerging market currencies are rising on the potential positive of a US-Iran agreement. But the situation remains fluid, and talks could be delayed or ultimately break down." In the foreign exchange market, most developing nation currencies strengthened against the US dollar, with the South African rand standing out with a gain of over 1%. The rand, often a key barometer for risk sentiment due to its high liquidity, also benefited from Brent crude oil falling below $100 per barrel. The Hungarian forint—the most oil-sensitive currency in Eastern Europe—rose sharply despite local market closures. The Indian rupee climbed to its highest level in two weeks following comments from central bank officials suggesting it may be undervalued. However, some caution persists in the market. Strategists, including Saktiandi Supaat of Maybank, wrote in a report that any substantial rally across asset classes would still require the actual reopening of the Strait of Hormuz, noting that "there have been several false dawns before." Naomi Fink, chief global strategist at Amova Asset Management, stated in an interview that investors want to see clear steps from both the US and Iran to de-escalate the situation. "If we actually see such progress, equities could continue to be rewarded. Equity investors seem surprisingly dismissive of this conflict, focusing more on the ongoing investment boom instead."