By Lawrence Delevingne and Sophie Kiderlin
BOSTON/LONDON, March 10 (Reuters) – Wall Street stocks advanced and oil prices plummeted on Tuesday after U.S. President Donald Trump declared the Middle East war could be “over soon” despite defiant comments from Iran’s military that cast some doubt over the prospects of a swift resolution.
The Dow Jones Industrial Average gained 0.4%, the S&P 500 added 0.3%, and the Nasdaq Composite rose 0.5%.
Europe’s STOXX 600 index pared some earlier gains but was last up 1.65% on Tuesday after declining for three consecutive trading days. MSCI’s broadest index of Asia-Pacific shares outside Japan rose around 3.4%.
Oil prices dropped 11% on Tuesday after soaring to a more than three-year high in the previous session. Brent futures LCOc1 were last trading around $88 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 fell to $83.74 a barrel.
Trump’s remarks on Monday injected optimism into the markets that contrasted with events in Iran, where hardliners rallied behind new Supreme Leader Mojtaba Khamenei and the Revolutionary Guards said a blockade of oil exports would continue until U.S. and Israeli attacks end.
Trump said the U.S. would hit Iran much harder if it blocked exports. On Tuesday, Trump told Fox News it was possible he would talk with Iran, while U.S. Defense Secretary Pete Hegseth said Tuesday would be the most intense day of strikes against Iran in the campaign so far.
“What I’m really focused on for the longer term is, to the extent that oil prices stay higher for longer, does that start to leak into inflation expectations, and does that derail this kind of disinflation story,” John Belton, a portfolio manager at Gabelli Funds, said in an email.
A GLOBAL REBOUND?
Steadier investor sentiment triggered a share rebound in Europe and Asia on Tuesday, while government bond yields dipped and interest rate expectations shifted again.
European indexes followed Asia higher to start the day before retracing some gains as the day progressed, with Germany’s DAX last up 2.25% and France’s CAC 40 adding around 1.85%.
Money markets cut the chances of a European Central Bank rate hike this year, after this was more than fully priced in late on Monday, while the benchmark German 10-year bond was little changed at 2.86%.
Rate-sensitive two-year yields fell, with Germany’s down 4 bps. Britain’s dropped 10 bps to 3.87% after hitting 4.23% on Monday at the height of market worries that surging oil prices would reignite inflation and prompt central banks in Europe to tighten policy later this year.
“Market pricing suggests weeks of disruptions, not days or months,” analysts at BlackRock Investment Institute wrote.
“There’s a risk of a stagflationary shock but it’s not a given, as market pricing indicates.”
The yield on the U.S. 10-year Treasury note was last down 1.3 basis points at 4.121%, having eased more sharply earlier in the day. Traders pushed out bets on the timing of the Federal Reserve’s next rate cut, with the first reduction now not seen until July, according to the CME Group’s FedWatch tool.
“We are still at troubling levels,” ING analysts said, referring to bond yields. “Expect nominal yields to fall for a bit on a reversal trade. But don’t expect a dramatic structural rally in bonds,” they wrote in a client note.
The U.S. dollar index, which measures its performance against a basket of six major currencies, was last slightly lower, extending Monday’s sharp fall.
Gold was up around 1.4% at $5,208 an ounce, while bitcoin added 2.68% to $70,850.
(Reporting by Lawrence Delevingne in Boston, Sophie Kiderlin in London and Gregor Stuart Hunter in Singapore; Editing by Mark Potter, Tomasz Janowski, Emelia Sithole-Matarise and Nick Zieminski)
