Wall Street gains, oil drops on hopes for renewed US-Iran talks

NEW YORK/LONDON —Wall Street stock indexes extended gains, oil prices dropped and the dollar's safe-haven appeal waned on Tuesday as the United States signalled new peace talks with Iran could be imminent even as a blockade on Iran's ports remained in place.

U.S. President Donald Trump said talks could resume in Pakistan over the next two days, after breaking down over the weekend. Pakistani and Iranian officials also said negotiations could restart with the agenda including transit through the vital Strait of Hormuz, as well as Iran's nuclear activity and international sanctions.

The Dow Jones Industrial Average .DJI rose 0.63% to 48,522.30, the S&P 500 .SPX advanced 1.11% to 6,962.85 and the Nasdaq Composite .IXIC strengthened 1.84% to 23,611.10.

"The shift in the U.S.-Iran conflict from missiles to words leaves markets hoping for a beginning to the end of the war," said Bob Savage, head of markets macro strategy at BNY.

Gains in big tech stocks have helped to push the S&P 500 .SPX back to pre-war levels. Europe's STOXX 600 .STOXX has recovered ground and rose 0.99% on the day, but stayed below its close on February 27, the day before the U.S. and Israel launched strikes on Iran.

On a cautionary note, Saxo's chief investment strategist Charu Chanana said markets were "trading hope, not resolution." The International Monetary Fund cut its global growth outlook.

A run of financial firms' earnings included $14 trillion asset manager BlackRock BLK.N, which reported rising first-quarter profit that pushed its stock up 3.5%, reversing some of its losses so far this year.

Citigroup <C.N> beat first-quarter profit estimates and its shares rose more than 3%. JPMorgan JPM.N also beat expectations but its stock lost 0.6%.

Dollar dips 

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, has fallen to within striking distance of its late February levels, sliding 0.26% on Tuesday to 98.09.

The dollar's safe-haven status had been nudging the currency higher since the outset of hostilities. It dropped as low as 97.978 earlier in the session, its weakest since the first trading day after the war began.

Inflation data from the U.S. Labor Department weighed further on the dollar, with the Producer Price Index (PPI) for final demand showing a rise of 0.5% last month, below the 1.1% increase forecast in a Reuters poll of economists.

Oil backs down

Oil prices fell as expectations for further dialogue to end the war outweighed concerns over supply disruptions.

Brent LCOc1 dropped to $95.02 per barrel, down 4.37% on the day, while U.S. crude CLc1 lost 7.27% to trade at $91.88 a barrel. Both benchmarks had been trading above $100 a barrel just a day earlier, when the U.S. began a blockade of Iran's ports, angering Tehran and adding uncertainty about flows through the Strait of Hormuz.

A Bank of America survey of global fund managers conducted in the first week of April showed investors expect oil to be priced at $84 by the end of the year.

Inflation concerns

U.S. Treasury yields drifted lower, with the two-year yield US2YT=RR last down 2.6 basis points at 3.755% and the benchmark 10-year yield US10YT=RR3.7 basis points lower at 4.26%.US/

Two-year Treasury yields, which typically move in step with expectations for interest rate cuts from the Federal Reserve, are nevertheless nearly 40 basis points higher than their late February levels, as rising energy prices fuel inflation concerns. Those have prompted investors to prepare for the possibility that major central banks reverse their previously expected course towards cuts or pauses this year, and instead tilt towards hikes.—Reuters