Stocks gain on de-escalation hopes as Hormuz keeps oil elevated

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Stocks gain on de-escalation hopes

Highlights

Asian, European and US stocks advanced on expectations of US-Iran talks and possible de-escalation in the Middle East.
Oil prices rose because the Strait of Hormuz remains restricted and the market does not expect a quick recovery in supply flows.
The drop in the VIX and the weaker dollar suggest easing panic, but not the disappearance of geopolitical risk.

A cautious rally driven by hopes for talks

According to Reuters, risk appetite strengthened noticeably across Asian markets. Regional indexes advanced ahead of talks scheduled for Saturday in Pakistan, where delegations from Tehran and Washington are expected to meet; South Korea’s Kospi and Japan’s Nikkei were among the leaders. In the United States, the S&P 500 rose 0.6% on Thursday, the Dow Jones also added 0.6%, and the Nasdaq gained 0.8%, showing that markets are willing to price in de-escalation even as tensions around oil supplies persist.

European equities also opened higher, with the pan-European STOXX 600 heading for a third straight week of gains. Defensive and technology stocks were among the most resilient, reflecting not euphoria but a gradual return to normal market logic after several days in which trading was driven almost entirely by war-related headlines. It was also notable that the VIX, one of Wall Street’s main fear gauges, fell below 20 and moved closer to its average prewar levels.

Oil rises because the Strait of Hormuz is still not fully open

That is where the main limit of the current market optimism lies. Brent crude rose to around $97.7 a barrel on Friday after sharp swings earlier in the week, though it was still on track for a weekly decline of about 10%. The increase reflects a simple reality: even with hopes for talks, the market does not see a full restoration of shipping through Hormuz.

In recent days, traffic through the strait has remained far below normal, while oil and gas flows through the route, which typically carries about one-fifth of global energy trade, are still under threat. Against that backdrop, diplomacy remains fragile. Iran has described Israeli strikes on Lebanon as one of the main obstacles to a durable ceasefire, while Washington continues to publicly demand the rapid reopening of the strait. Even if the weekend talks produce a political signal of de-escalation, the oil market, judging by price action, is still unwilling to assume a quick return to normal maritime traffic.

The next major test for markets

For investors, the coming days may matter as much as Friday’s rally itself. Stocks are rising on expectations that US-Iran talks could at least reduce the risk of a new phase of war, but oil near the $98 level shows that the geopolitical risk premium has not disappeared.

The dollar index hovered around 98.9 and was on track for its worst week since January, while investors awaited fresh US inflation data to assess how far the Middle East shock may already be feeding into the world’s largest economy. If the strait remains constrained, pressure on energy markets and inflation expectations will quickly move back to the center of investors’ attention.

In an earlier report, we noted that oil rises toward $97 as Strait of Hormuz remains restricted.

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