Peace deal optimism lifts U.S. equities as Hormuz reopening eases energy supply fears, but FOMC meeting under new Fed Chair Kevin Warsh could confirm the breakout or trigger a bull trap.
The developments over the weekend have injected fresh optimism into financial markets as trading begins for the new week. Early market signals indicate that U.S. equities are poised for a strong opening, extending the positive momentum seen over the past several sessions.
The Nasdaq 100 Index (NDX) appears set to make another run at the key 30,000 psychological level, a threshold it has not tested in about a week. The index, which tracks 100 of the largest non-financial technology companies listed on the Nasdaq, currently trades roughly 4.3% below its record intraday high of 30,762.20 reached on June 3.
What is driving the renewed risk appetite?
U.S. President Donald Trump announced on Truth Social on Sunday that a deal with Iran had been finalized and that he had authorized the reopening of the Strait of Hormuz, the critical Persian Gulf shipping route through which nearly one-fifth of global oil and natural gas supplies pass.
The waterway had remained largely disrupted since the outbreak of the U.S.-Iran conflict in late February, triggering concerns over global energy supplies and contributing to an oil market shock. The prospect of normalizing energy flows has eased fears of a prolonged supply disruption, boosting investor confidence and supporting demand for risk assets.
The formal signing of the deal has been scheduled for Friday, and following this, the two sides get a 60-day ceasefire window for negotiations, which will help iron out differences of opinions over sanctions and Iran’s nuclear program.
Trump has made several claimsin recent weeks that a deal was close, imminent, or effectively agreed, while Iranian officials often disputed the timing or characterization of those announcements. But this time around, there is a distinction. The latest declaration from the U.S. president has been accompanied by confirmations from multiple parties and a scheduled signing ceremony, lending greater credibility to the prospect of a durable ceasefire.
Iran’s Foreign Minister Seyed Abbas Araghchi told Iranian State TV on Saturday that the negotiation process led by the country’s parliamentary Speaker Mohammad Bagher Qalibaf was nearing its final stage. “This movement has resulted in a 14-clause Memorandum of Understanding to end the war, ensuring our victory is firmly stabilized,” he added.
https://x.com/Iran_GOV/status/2065714482916016251
Although only scant details have been released officially regarding the deal terms, Iran reportedly stated that the ceasefire agreement ends fights on fronts, including in Lebanon.
The Road Back to Normalcy
With the war that has raged on for 106 days on track to end following the peace deal, the overwhelming question in the minds of market participants is how soon normalcy would return, easing the strains on the global supply chain.
The confirmation of the peace deal, which is a prelude to a broader framework agreement that would be negotiated to end the war, has sent oil prices tumbling on Monday. The West Texas Intermediate (WTI) crude futures (CL) tumbled more than 5% to under $81 a barrel, although it is still nearly 20% higher from prewar levels. The incomplete unwinding of war premium reflects the challenges enroute to a lasting peace in the region. For shippers confidence to return and transit through Hormuz to resume, safety has to be assured. Major companies are awaiting details, including those on mine clearance.
“The market is clearly pricing in a return to business as usual, but after months of disruption owners and charterers alike will likely remain cautious until ships are consistently moving freely through Hormuz once again,” said Sentosa Ship Brokers analysts, Al Jazeera reported.
Danish investment bank Saxo Chief Investment Strategist Charu Chanana highlighted two caveats at this juncture:
- The strategist foresees political and implementation risks, including signing risk, Israel risk, nuclear talks and sanctions sequencing
- Even after a final deal, oil flows may take time to normalise because Hormuz reopening depends on shipping safety, insurance costs, inspections, security guarantees and tanker movement.
Key Catalysts that Matter This Week
The Federal Open Market Committee (FOMC), the policy-setting arm of the U.S. Federal Reserve is set to meet for a two-day meeting that kicks off on Tuesday. The meeting assumes importance because of it being the first chaired by incoming central bank chief Kevin Warsh.
The futures market has factored in a 98.7% probability of the Fed holding fire, according to the CME FedWatch tool.
Source: CME FedWatch Tool
Morgan Stanley Chief Economist Michael Gapen expects the Fed to stay on hold and remove its easing bias. He also expects the Statement of Economic Projections (SEP) to show an upward revision to inflation estimates for 2026 and 2027. The economists expects Warsh to to acknowledge both inflation risks and the possibility of faster productivity.
The Group of Seven (G-7) meeting scheduled to be held in France will also be in the spotlight as traders glean insights from comments made regarding the peace deal.
The May U.S. retail sales report, due on Wednesday, and the quarterly index rebalancing of key S&P indices may also sway the markets.
Technically Constructive
The Nasdaq 100 futures (NQ) was last seen trading up 2.13% at 30,593, reclaiming the key 30,050 level, which acted as the prior support before the June sell-off. Monday’s candle reflects a strong bullish thrust.
Source: TradingView
The June pullback found support around the 28,700 level and bounced hard. That level is now critical support. As long as price holds above it on any retest, the bullish structure remains intact. The sharp V-recovery from that low mirrors the April recovery pattern. At 62.33, the 14-day relative strength index (RSI) signals healthy momentum without being overbought.
Upside resistance lies around Monday’s high of 30,628 for the NQ futures, and a break above this level could leave the contract facing the 31,000 psychological level. The key support levels to watch for are 30,050, the 20-day simple moving average (SMA) of 29,776 and the 29,700 swing low.
The one caveat is the FOMC meeting. A hawkish post-meeting policy statement and/or a hawkish Warsh could turn the breakout candle seen on Monday into the left shoulder of a bull trap. For full confirmation,watch for a daily close above 30,628.