By Nell Mackenzie and Ankur Banerjee
LONDON/SINGAPORE, Aug 3 (Reuters) – Oil prices fell sharply while European stock markets jumped on Monday as hopes of a peace deal in the Middle East grew, while the yen firmed to a three-month high after the U.S. and Japan confirmed joint intervention to support the weak currency.
Brent crude futures sank $4.50, more than 5%, to $83.40 a barrel after U.S. President Donald Trump said talks with Iran will happen on Monday. He had earlier called off an attack on Iran to pursue a deal to reopen the Strait of Hormuz. [O/R]
European shares ticked up 0.4% Monday to start August on a firm note. The German DAX notched an intra-day record and was last up 1.3%.
“For equity markets, the fundamental picture remains encouraging,” said Bruno Schneller, managing partner at multi-family office Erlen Capital Management.
“Earnings have generally held up well, and companies with strong pricing power and resilient business models continue to outperform.”
S&P 500 futures rose 0.5% while Nasdaq futures gained 0.6%.
Over half of the S&P 500 component companies have reported earnings so far, with 86% of firms beating earnings expectations, research on Monday from Florian Ielpo, head of macro at Lombard Odier Investment Managers, noted.
Asian stocks struggled as the new month began after a turbulent July marked by wild swings as investors fretted over massive capital spending on AI and whether it will provide returns quickly enough.
Japan’s Nikkei dropped 1%, while South Korea’s KOSPI slid more than 5%. This weighed on the MSCI’s broadest index of world shares leaving the flat.
YEN BEARS COWER AFTER JOINT INTERVENTION
The Japanese yen strengthened over 0.5% to 156.70 per U.S. dollar after a sudden move earlier in the day to its strongest since early May of 155.2, putting traders on alert for another bout of intervention.
Japan and the U.S. conducted coordinated yen-buying intervention and will not hesitate to take further action, Japan’s finance ministry said on Monday, confirming a rare bilateral action to halt the yen’s slide to 40-year lows.
U.S. Treasury Secretary Scott Bessent also said the United States would consider increasing in coming months the size of the Federal Reserve’s repurchase facility providing temporary dollar liquidity, calling the tool an “important backstop”.
“Bessent’s comments arguably carry more weight than the intervention itself,” said Matt Simpson, senior market analyst at StoneX. “It feels like a safe bet that the Japanese yen has troughed for the year. The words ‘joint intervention’ carry a lot of weight in these markets and is a term rarely used.”
Trump said on Sunday the United States was helping Japan prop up the yen as a sign of friendship and to help the world economy.
Tokyo’s solo intervention conducted between late April and early May caused only a brief yen rebound, while a rate hike in June by the Bank of Japan provided little boost, underscoring the challenge policymakers face of rising oil prices and a wide interest-rate differential against other major economies.
The yen had been rooted near 40-year lows of 163.99 per U.S. dollar in recent weeks before the latest interventions, with net short positions on the yen of roughly $12.5 billion, the highest in two years, data from a U.S. regulator showed.
Over the near term, 155 remains the level to watch, noted Masahiko Loo, senior fixed income strategist at State Street Investment Management.
The action and comments from Bessent repeating his calls for further interest-rate hikes by the BOJ have put monetary policy in focus.
Elsewhere, U.S. Treasury yields retreated as oil prices fell.
The yield on the 30-year bond fell 4.5 basis points to around 5.23%, easing away from a 19-year high it touched last week.
It jumped around 37 basis points in July as investors grappled with confusion around the Iran war and the policy outlook for the Federal Reserve. [US/]
(Reporting by Nell Mackenzie in London and Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman, Jacqueline Wong and Barbara Lewis)