Monday 21:25 GMT. Oil prices grabbed the headlines, with Brent crude paring a steep early decline as the markets digested the implications of the weekend’s historic deal to curb Iran’s nuclear programme.
But Wall Street moved in the opposite direction, with the S&P 500 staging a late retreat after hitting a record intraday high.
Iran’s agreement with six world powers to freeze key elements of its nuclear programme in return for an easing of sanctions on the country initially drove Brent crude down as much as $3 a barrel – its biggest fall in three weeks.
But it subsequently rallied to settle only 5 cents lower at $111.00. West Texas Intermediate, the US crude benchmark, bounced off a low of $93.08 to settle at $94.09, down 75 cents.
In spite of the initial falls, few market analysts took the view that the deal would trigger a sudden influx of fresh crude supplies.
“None of the sanctions relief outlined over the weekend will allow Iran to materially increase oil exports,” said Tom Pugh at Capital Economics.
But he added: “The deal does lay the groundwork for a potentially much more significant agreement next year.
“We expect this to contribute to a fall in [Brent] oil prices to $90 per barrel by the end of 2014, and further to $70 by the end of 2020. What’s more, a comprehensive deal between the west and Iran should contribute to an easing in tensions in the Middle East more generally.”
Indeed, the markets appeared to shrug off Israel’s overnight warning that the deal was an “historic mistake”.
Neverthless, some in the markets were concerned that a more comprehensive agreement could prove difficult to reach.
“We believe the path to a final deal, which would lead to the removal of the most sweeping sanctions, remains challenging,” said analysts at Barclays.
Asian and European equity markets embraced the view that weaker oil prices would benefit the global economy by cutting companies’ energy costs and bolstering consumer spending.
The FTSE Eurofirst 300 ended with a gain of 0.4 per cent, while the Nikkei 225 in Tokyo climbed 1.5 per cent – further buoyed by the yen’s weakness against the generally firmer dollar.
But the S&P 500 in New York finished the session with a loss of 0.1 per cent at 1,802, after hitting a fresh intraday record of 1,808.
Meanwhile, the dollar continued to draw support from expectations that the Federal Reserve would begin withdrawing its economic stimulus within coming months.
The dollar index, a gauge of the currency’s value against a weighted basket of counterparts, was up 0.2 per cent, with the euro down 0.3 per cent and hovering just above the $1.35 level.
The dollar hit a six-month high against the yen within a whisker of the Y102 mark, as the Japanese currency’s “haven” appeal was damped by a broad improvement in risk appetite triggered by the Iran deal.
Elsewhere, volumes in the US dollar/Canadian dollar cross were particularly heavy, according to Reuters data, as the “loonie” was undermined by the early weakness for oil and gold.
The US currency was up 0.4 per cent at C$1.0556, and threatening to make a decisive break above C$1.06 for the first time in two years.
Gold reversed an early fall to trade $5 higher at $1,248, having earlier touched a fresh four-month low of $1,228
Copper was little changed, in spite of the firm dollar, ending at $7,099 a tonne in London – just $4 up from Friday’s close.
US government bond prices rose, recovering more of the ground lost last week when the minutes of the Fed’s October policy meeting were initially interpreted by the markets as being somewhat on the hawkish side.
The yield on the 10-year Treasury was down 2 basis point at 2.73 per cent. It briefly rose as high as 2.83 per cent last week as the minutes rekindled the prospect of the Fed beginning to “taper” its monthly asset purchases before the end of the year.
Some support for Treasury prices came on Monday from data showing US pending home sales had fallen 0.6 per cent in October.
“The decline confirms that the US housing market might have reached a relative peak in the third quarter as housing activity started to suffer from the spike in mortgage rates and some caution due to the uncertain economic outlook,” said Annalisa Piazza at Newedge Strategy.
The German Bund yield edged back 1bp to 1.73 per cent.