Wall Street rebounds to record highs as word on US-Iran ceasefire extension deal looms

Oil prices eased and Wall Street rebounded to record highs early on Friday morning, after reports emerged that the US and Iran may agree to a 60-day ceasefire extension via a memorandum of understanding.

The potential deal that saw US shares swing higher, will re-open the Strait of Hormuz to shipping and offer sanctions relief to Iran including the release of frozen monetary funds.

The key issue of who controls Iran’s enriched uranium stockpile remained unclear, with news agency Axios reporting US President Trump is considering the terms of a proposed new deal.

Neither side gave official confirmation that a 60-day peace deal is close to being agreed.

Earlier on Thursday AEST, the US and Iran attacked each other in the most serious clashes since April in the Middle East conflict known as Gulf War III.

On Thursday, Washington accused Tehran of a ceasefire breach after it attacked US army base in Kuwait. While President Trump also verbally threatened to escalate attacks on Iran, unless it agreed to satisfactory peace terms.

“The market has placed its bets on a peace deal, so that’s almost fully priced into all asset prices now,” said Kyle Rodda a Senior Markets Strategist at Capital.com. “Now, it’s without a doubt a situation where the where risk [for asset prices] is skewed to the downside if the conflict erupts again.”

In late trade on Thursday, the S&P 500 climbed 0.5 per cent to a record high of 7556 points to take its one-month rise to 6.1 per cent as traders once again expected a peace deal amid a seesaw flow of news. While the tech-heavy Nasdaq Index added 0.7 per cent to an all-time high of 26,835 points.

“The AI [artificial intelligence] trade is still very, very, strong,” said Mr Rodda. “The reason why we have equity markets at these high levels isn’t just because of an expected peace deal. In the US we still have very strong corporate earnings. In Asia the [computer] chip makers just keep going higher, which is a demand story backed by profits.”

Benchmark Brent crude oil prices eased around 1 per cent on the reports of a fresh deal to $US91.87 a barrel.

US WTI oil also edged lower to $US90.61 a barrel. Benchmark oil prices are now down around 10 per cent since May 18 when President Trump said he called off more strikes against Iran to allow time for detailed negotiations.

Gold falls on conflict chaos

On Thursday night, US Treasury Secretary Scott Bessent also weighed into the conflict with a post on social media platform X. “Only a satisfactory outcome in negotiations will end the downward spiral,” he wrote.

The US Treasurer and close all to Trump also branded Iran’s Persian Gulf Strait Authority (PGSA) a “joke” after he slapped sanctions on the newly-established body Iran set-up to charge ships a fee to transit the Strait of Hormuz.

The passageway bordering Iran and Oman carries around 20 per cent of the world’s oil and liquefied natural gas supplies. Analysts have warned of rising food, fertiliser and transport costs as a result of its ongoing closure to shipping.

Mr Bessent added: “Their troops are not getting paid, the police are not reporting for work, and Kharg Island is shut down.”

The chaotic peace negotiations and sporadic fighting in the Middle East also pushed gold to a two-month low of $US4460 an ounce.

The precious metal has tumbled around 15 per cent since the war in Iran began on February, in a traditional reversal of its role as a safe-haven asset bought in times of geopolitical turmoil.

“US strikes on an Iranian military sites clouded the outlook for peace negotiations, keeping inflationary and interest rate concerns in focus,” said Trading Economics. “Key disagreements also remain unresolved, including Tehran’s insistence on maintaining control of the Strait of Hormuz and preserving its nuclear program.

“President Donald Trump reiterated that the US would not agree to what he called a bad deal and rejected easing sanctions on Iran despite Tehran’s demands for financial relief and an end to attacks.”

Bitcoin an asset class often know as digital gold also tumbled around 3 per cent to $US72,900 a coin on news of renewed fighting with Iran. The digital token - famous for its volatility - later recovered a little to top $US73,000 after news of a potential new peace deal broke.

Data on Thursday night, also showed core inflation - excluding volatile food and energy prices - in the US rose 3.3 per cent over the year to April, in-line with economists’ forecasts.

Australian shares lower

The S&P/ASX 200 sunk 1.4 per cent on Thursday as the local market aims to avoid three straight days of falls in Friday’s session. Gold miners led the falls as the broader materials sector snapped a five-day winning streaks on bets inflation will broadly lift commodity prices.

Mr Rodda said cyclical shares or businesses would fare the worst in the event of a renewed escalation in the Middle East. “Higher oil prices would mean higher costs and weaker consumers,” he said. “So, companies that are sensitive to changes in interest rate expectations or inflation will tend to fare the worst on the share market.”

Worries about a domestic slowdown pushed the Australian dollar down 0.5 per cent to buy US71.2 cents.

“The big wild card to all of this is still the Middle East,” said Mr Sycamore. we’ve had all this hope about the re-opening of the Strait of Hormuz and again we’re asking does this drag on for another two days, two weeks, or two months we don’t know. And the RBA has a lot of balls in the air with the budget, inflation, jobs market, Iran, but I think it’s moving to an extended hold.”

Cash rate futures traders have also cut the chances of an interest rate increase from the Reserve Bank at its June 16 meeting to as low as 1 per cent. The market now expects one more interest rate increase this year to take the cash rate to 4.6 per cent.

“The Aussie [dollar] has been suffering a narrowing of interest rate support over the past week-and-a-half,” said Tony Sycamore a Market Strategist at IG. “In the US traders are now baking in [interest] rate hikes before year end, and we’re taking out rate hikes here [in Australia]. I feel like that could be a weight around the Aussie dollar’s neck, so I feel like we could break below 71 cents soonish.”

The strategist said he expects Australian shares could rally if the latest claims about a concrete peace deal prove accurate.

“Australian shares have performed at odds with the strength in Europe and the US,” he said. “We’re a very interest rate sensitive stock market with the banks, insurers, property and the consumer-facing sector. The pared back rate expectations could see the ASX extend a small rally over the next week or two.”

Over a year to date interrupted by the Iran war and three rate hikes from the RBA the S&P/ASX 200 is down 1.4 per cent.

The latest fighting that sunk Australian shares on Thursday included the US confirming it shot down four Iranian drones over the Strait of Hormuz and striking a drone control station.

Iran responded by claiming a revenge attack on a US airbase in Kuwait. It also said it fired on four ships attempting to transit the Strait of Hormuz. The Middle Eastern nation has repeatedly warned of stronger retribution if the US continues to bomb its infrastructure.

Elsewhere on Friday morning, Israel also launched fresh strikes on Beirut as part of its US-backed war on Iranian-backed militant group Hezbollah.