San Francisco Frontiers - Stocks extend rally, oil falls further as peace optimism builds

The euphoria that swept trading floors at the start of the week continued to propel buying amid relief at the end of a three-month conflict that sent shockwaves through energy markets and global inflation soaring.

US President Donald Trump said ships were again moving through the Strait of Hormuz and it would be "completely open" by Friday, while Iranian media said three oil tankers and two cargo ships had passed through the vital waterway that had been subject to a US naval blockade.

Tehran blockaded the strait after the United States and Israel launched their war against Iran on February 28. The United States then blocked shipping to and from Iranian ports.

However, a senior US administration official said Trump, Vice President JD Vance and Iran's parliamentary speaker Mohammad Bagher Ghalibaf had already signed the text electronically.

"Investors are increasingly pricing in a lasting improvement in the geopolitical backdrop," wrote Fiona Cincotta at City Index.

"However, with several details yet to be finalised, any setbacks could trigger a sharp market reaction. For now, confidence is growing that the Strait of Hormuz will reopen and energy supplies will normalise."

She added that "the key question is not whether a deal is reached, but how quickly oil exports and production can recover".

"Investors will also be watching compliance with the agreement and the pace of supply normalisation," she said.

Oil industry watchers caution that market conditions will likely be tight for a period of weeks or months. Fresh US Department of Energy data showed strategic oil stockpiles sank last week to their lowest level since 1983.

Shipping groups warned on Monday that it was too soon to safely resume sailing.

The deal sparked a huge relief rally across global equities, with the Dow on Wall Street hitting a record high, while crude prices plunged almost five percent Monday.

The optimism remained largely intact on Tuesday, with both main crude contracts sliding more than one percent to sit around $80 a barrel -- compared with the levels above $110 touched after the war began.

Seoul led gains once more, surging two percent -- a day after piling on more than five percent -- helped by fresh advances in the tech sector.

That came on the back of another blockbuster day for Elon Musk's SpaceX, which jumped almost 20 percent for the second day in a row after listing on Monday.

Tokyo's Nikkei 225 index also advanced, briefly topping 70,000 points for the first time. The yen was barely moved after the Bank of Japan hiked interest rates for the first time since December and pushed them to their highest level since 1995.

On announcing the decision, the bank said: "The price pass-through stemming from the rise in crude oil prices has been progressing at a relatively fast pace in business-to-business transactions, which could spread to an increase in consumer prices across a wide range of items."

Sydney, Singapore, Taipei, Wellington, Mumbai and Manila also rose, as did London, Paris and Frankfurt.

However, Hong Kong and Shanghai were down.

There was little reaction to news that Chinese retail sales shrank last month for the first time since 2022.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 0.1 percent at 69,404.50 (close)

Hong Kong - Hang Seng Index: DOWN 1.4 percent at 24,493.95 (close)

Shanghai - Composite: DOWN 0.1 percent at 4,091.89 (close)

Seoul - Kospi: UP 2.1 percent at 8,726.60 (close)

London - FTSE 100: UP 0.2 percent at 10,450.60

West Texas Intermediate: DOWN 1.5 percent at $79.54 a barrel

Brent North Sea Crude: DOWN 1.4 percent at $82.02 a barrel

Euro/dollar: DOWN at $1.1590 from $1.1592 on Monday

Pound/dollar: DOWN at $1.3411 from $1.3416

Dollar/yen: UP at 160.31 yen from 160.30 yen

Euro/pound: UP at 86.44 pence from 86.40 pence

New York - Dow: UP 0.9 percent at 51,671.03 (close)

B.Turner--SFF