NEW YORK (AP) — Oil prices are dropping further, and stocks are rallying worldwide Tuesday on hopes that Israel’s war with Iran will not damage the global flow of crude, even if a tentative truce seemed to fray under fire in the morning.
The S&P 500 was 0.7% higher in early trading, following up on even bigger gains for stocks across Europe and Asia, after President Donald Trump said late Monday that Israel and Iran had agreed to a “complete and total ceasefire.” The Dow Jones Industrial Average was up 289 points, or 0.7%, as of 9:31 a.m. Eastern time, and the Nasdaq composite was 0.9% higher.
The strongest action was again in the oil market, where a barrel of benchmark U.S. oil fell 4.9% to $65.12. Brent crude, the international standard, dropped 4.8% to $67.14.
The fear throughout the Israel-Iran conflict has been that it could squeeze the world’s supply of oil, which would pump up prices for gasoline and hurt the global economy. Iran is a major producer of crude, and it could also try to block the Strait of Hormuz off its coast, through which 20% of the world’s daily oil needs passes on ships.
But oil prices began falling sharply on Monday after Iran launched what appeared to be a limited retaliatory strike that did not target the production or movement of oil. They kept falling even after attacks continued past a deadline to stop hostilities early Tuesday. Trump would later said that the ceasefire was “in effect.”
Oil prices have dropped so much in the last two days that they’re below where they were before the fighting began nearly two weeks ago.
With the global oil market well supplied and the OPEC+ alliance of producing countries steadily increasing production, oil prices could be headed even lower as long as the ceasefire holds and a lasting peace solution can be found, said Carsten Fritsch, commodities analyst at Commerzbank.
Falling oil prices should take some pressure off inflation, and that in turn could give the Federal Reserve more leeway to cut interest rates.
Wall Street loves lower rates because they can give the economy a boost by making it cheaper for U.S. households and businesses to borrow money to buy a car or build a factory. But they could also give inflation more fuel. That latter threat is why the Fed has been hesitant to cut rates this year after lowering them through the end of last year.
The Fed has been saying repeatedly that it wants to wait and see how much Trump’s tariffs will hurt the economy and raise inflation before it commits to its next move.
Trump, though, has been pushing for more cuts to rates. And two of his appointees to the Fed have said in the last week that they may consider cutting rates as soon as the Fed’s next meeting next month.
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Such mixed messages had Treasury yields swiveling up and down in the bond market, but not moving all that much ultimately. The yield on the 10-year Treasury edged up to 4.35% from 4.34% late Monday.
The two-year Treasury yield, which more closely tracks expectations for Fed action, edged up to 3.85% from 3.84%.
In stock markets abroad, indexes rallied more than 1% everywhere from France to Germany to Japan following the announcement of the Israel-Iran ceasefire. Hong Kong’s jump of 2.1% and South Korea’s leap of 3% were two of the strongest moves.
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