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FILE| Models of oil barrels and a pump jack are displayed in front of a rising stock graph.
Markets have reacted positively to reports that the US and Iran may resume talks to end the war despite a blockade on Iranian ports.
Local equities were trading slightly higher on Tuesday with the JSE All Share up around half a percent, supported by improving global sentiment.
This comes amid easing oil prices, with Brent crude slipping back below the 100-dollar mark after surging as high as 118 dollars amid fears of supply disruptions during late March.
Analysts have noted just how sensitive markets have become to geopolitical headlines.
Nedgroup Investments Trevor Garvin says for now, markets appear to be pricing in a positive outcome from the talks.
“What you’ve seen is very much different countries and different stock markets reacting differently. So, the US is a great example. The US is self-reliant on oil. It’s not reliant at all or affected by the Strait of Hormuz, and hence the American stock market and equity prices have been strong, and as we’ve said, pretty much back to pre-war levels now. But you’ve got countries like India as an example, China, who are much more reliant on the oil supply coming through the Strait of Hormuz. And their stock markets have shown bigger declines because those countries in terms of economic growth and oil supply are much more affected and at risk,” says Garvin.
The rand has strengthened further, briefly touching R16.36 to the dollar in late trade, while remaining highly sensitive to developments around the war and broader risk sentiment.
Director and currency strategist at TreasuryONE Andre Cilliers says any progress toward a deal would be positive for global markets, potentially driving oil prices significantly lower and supporting a normalisation in forex markets.
“So, it could be received extremely positive because the impact is so big in terms of energy prices worldwide and the effect of that on the possibility of economic growth being slowed down with subsequent possibility of rising in interest rates because of inflation going higher. So, a dramatic impact if they sign an agreement and it is being enforced.”
Analysts warn that further escalation of tensions in the Middle East could trigger sharp moves in markets, particularly if oil prices react negatively.
Video| Investors hold out hope for US-Iran resolution:
