Oil prices skidded and U.S. and European stock futures rose 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 prop up the frail currency.
Brent crude futures LCOc1 sank more than 4% to $83.88 a barrel after U.S. President Donald Trump said talks with Iran will happen on Monday. He had earlier called off an imminent attack on Iran to reach a deal to reopen the Strait of Hormuz and resolve the impasse over Tehran's nuclear capabilities.
Treasury yields ease as oil drops
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 facing policymakers with 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 bout of 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.
"Near term, 155 remains the key level to watch, having effectively served as the market floor/resistance post May intervention this year," said 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.
The 2-year JGB yield JP2YTN=JBTC, which is most sensitive to near-term monetary policy moves, briefly hit 1.545% on Monday, the highest since 1995, as markets priced in the chance of an early rate hike.
"Intervention may shape the next few months. BOJ normalisation and hedging flows will shape the next few years. The next major move in the yen may ultimately be higher, not lower," Loo said.
The drop in oil prices led U.S. Treasury yields lower. The yield on the 30-year bond US30YT=RR fell 3.7 basis points to 5.238%, easing away from a 19-year high it touched last week. It had jumped 372 basis points in July as investors grappled with confusion around the Iran war and the policy outlook for the Federal Reserve.
Yen strengthens after joint intervention
The Japanese yen JPY= strengthened 0.5% to 156.49 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 fresh 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' carries a lot of weight in these markets and is a term rarely used."
Stock futures rise as Asian shares struggle
S&P 500 futures EScv1 rose 0.6% while Nasdaq futures NQc1 gained 0.8%. European futures STXEc1 were 0.8% higher.
Asian stocks struggled at the start of the week after a turbulent July that saw wild swings on worries over the AI trade as investors fretted over massive capital spending and whether it will provide returns quickly enough.
Japan's Nikkei .N225 dropped 1%, while South Korea's KOSPI .KS11 slid more than 5%. MSCI's broadest index of Asia-Pacific shares outside Japan .MISX00000PUS was down 1%.
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