Oil plunges, stocks jump on US-Iran peace deal

Oil prices dropped towards $80 a barrel, and stocks rallied on Monday after Washington and Iran reached a framework deal to end the Middle East war and reopen the Strait of Hormuz, sending a wave of relief through global markets.

The strait, through which roughly 20 per cent of the world's crude oil supply normally transits, was effectively closed by Tehran after the US and Israeli strikes on Iran in late February, sending energy prices soaring.

The peace deal - in fact a "memorandum of understanding" - is due to be sealed with a signing ceremony in Switzerland on Friday, ending three months of conflict that have revived fears of a prolonged inflation spike.

Crude prices shed about five per cent, having surged above $110 soon after the conflict began.

Wall Street indexes jumped, led by the tech-heavy Nasdaq, where SpaceX climbed a further eight per cent after the blockbuster $75 billion IPO for Elon Musk's rockets-to-AI firm.

That followed gains across European and Asian equity markets, while the dollar, traditionally an investment haven in times of turmoil, fell.

The Tokyo and Seoul stock markets soared around five per cent each, largely on new flows into tech firms.

Paris and Frankfurt rose while London's FTSE 100 slipped, pulled down by heavyweight oil firms as energy prices sank.

"Asian and European markets enjoyed a bounce on the news, but the scale of the advance wasn't as huge as one might have expected," said Russ Mould, investment director at AJ Bell.

"That's partially down to markets having already bounced back in recent weeks, but it is also because inflation fears won't suddenly disappear," he added.

Iran's deputy foreign minister Kazem Gharibabadi said that the deal put an "immediate end" to the war and that talks on a "final agreement" would be held within two months.

But the content of the preliminary agreement, which follows weeks of fraught negotiations and periodic threats from US President Donald Trump of new attacks despite a ceasefire agreed in April, remained unclear.

"The Deal with the Islamic Republic of Iran is now complete," Trump said on Sunday. "Ships of the World, start your engines. Let the oil flow!"

Elsewhere, the US Federal Reserve and the Bank of England are expected to leave their main interest rates unchanged this week, preferring to wait and see if inflation risks will quickly subside.

It will be the first meeting chaired by Kevin Warsh, and comes after Trump's repeated demands for rate cuts to boost the world's biggest economy.

"What he says about interest rates, given that inflation is still twice the Fed's two per cent target, should be interesting," said David Morrison, senior market analyst at Trade Nation.

The Bank of Japan, meanwhile, is expected to increase borrowing costs, following a quarter-point rate increase by the European Central Bank last week.

Key figures

Brent North Sea Crude: DOWN 4.9 per cent at $83.07 a barrel

West Texas Intermediate: DOWN 5.2 per cent at $80.50 a barrel

New York - Dow: UP 1.3 per cent at 51,840.73 points

New York - S&P 500: UP 1.8 per cent at 7,563.52

New York - Nasdaq: UP 2.8 per cent at 26,602.63

London - FTSE 100: DOWN 0.4 per cent at 10,430.62 (close)

Paris - CAC 40: UP 0.4 per cent at 8,384.01 (close)

Frankfurt - DAX: UP 1.1 per cent at 24,894.01 (close)

Tokyo - Nikkei 225: UP 5.0 per cent at 69,317.50 (close)

Hong Kong - Hang Seng Index: UP 0.7 per cent at 24,892.18 (close)

Shanghai - Composite: UP 1.6 per cent at 4,096.47 (close)

Euro/dollar: UP at $1.1603 from $1.1577 on Friday

Pound/dollar: UP at $1.3435 from $1.3416

Dollar/yen: DOWN at 160.16 yen from 160.23 yen

Euro/pound: UP at 86.37 pence from 86.27 pence