Global financial markets began August on a more optimistic footing on Monday as renewed hopes for diplomacy between the United States and Iran triggered a broad repricing across asset classes, sending oil prices sharply lower, pulling U.S. Treasury yields down, lifting gold and supporting equities.
The prospect of negotiations eased fears of a prolonged disruption to Middle East energy supplies, reducing inflation concerns that had intensified during the recent conflict and prompting investors to rotate back into risk assets.
U.S. stock futures pointed to a stronger opening, with S&P 500 futures rising 0.6% and Nasdaq futures gaining 0.4%, while European equities advanced after a volatile July dominated by geopolitical tensions and questions over artificial intelligence spending.
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The biggest move came in energy markets.
Brent crude plunged more than 5%, falling $4.40 to $83.52 per barrel after U.S. President Donald Trump said negotiations with Iran would resume on Monday. Trump had previously halted plans for additional military strikes to pursue a diplomatic solution aimed at reopening the Strait of Hormuz, the strategic waterway through which roughly one-fifth of global oil consumption passes.
The decline in crude prices marked a sharp reversal after oil had surged during the U.S.-Iran conflict, when fears of supply disruptions and shipping risks in the Gulf pushed prices to multi-year highs. Lower oil prices immediately eased pressure on inflation expectations, reducing concerns that central banks would need to keep interest rates elevated for longer.
The optimism, however, was tempered by Iran’s response.
Iranian Foreign Ministry spokesperson Esmail Baghaei dismissed reports of imminent direct negotiations with Washington, saying Tehran currently has “no immediate plan” for talks with the United States and remains engaged only with Oman over discussions related to the Strait of Hormuz.
The easing in oil prices reverberated across fixed-income markets.
U.S. Treasury yields fell as investors reduced expectations that energy-driven inflation would force the Federal Reserve to tighten monetary policy further.
The benchmark 10-year Treasury yield declined seven basis points to 4.676%, while the policy-sensitive two-year yield fell six basis points to 4.231%. The 30-year Treasury yield slipped to 5.216%.
Bond prices and yields move in opposite directions, meaning investors returned to government debt as inflation expectations moderated.
The retreat partially reversed last week’s sharp selloff, when long-dated Treasury yields climbed to their highest level since 2007 after the Federal Reserve left interest rates unchanged at 3.5% to 3.75% but faced an unusually hawkish split among policymakers, with three officials voting for a rate increase.
Several Fed officials have warned that persistent inflation risks, including higher energy prices, could still justify tighter monetary policy if price pressures fail to ease.
“While the decline in short-dated yields reflects a more dovish near-term policy outlook, the rise in long-end yields signals growing concern that Chair Warsh may prove unwilling to act aggressively enough should inflation remain elevated,” said Seema Shah, chief global strategist at Principal Asset Management.
“The bond market is effectively testing the Fed’s credibility.”
Gold also benefited from the shift in market expectations.
Spot gold gained 0.3% to $4,052.96 per ounce, while U.S. gold futures edged 0.2% higher to $4,051.70.
The precious metal was supported by a weaker U.S. dollar and declining Treasury yields, both of which improve the appeal of non-yielding assets such as gold. The metal also continues to benefit from lingering geopolitical uncertainty, as investors maintain defensive positions even while hopes for diplomacy improve.
Gold has now posted its first monthly gain in five months after advancing about 1% in July, suggesting investors continue to view it as an important hedge against geopolitical risks, inflation shocks and market volatility.
Equity investors also drew support from another resilient corporate earnings season.
More than half of S&P 500 companies have now reported quarterly results, with approximately 86% exceeding analysts’ earnings expectations, according to research from Lombard Odier Investment Managers.
The earnings performance has helped offset concerns surrounding elevated valuations, slowing global growth and the enormous capital expenditure commitments tied to artificial intelligence infrastructure.
“For equity markets, the fundamental picture remains encouraging,” said Bruno Schneller, managing partner at Erlen Capital Management.
“Earnings have generally held up well, and companies with strong pricing power and resilient business models continue to outperform.”
European markets extended recent gains, with the pan-European STOXX 600 rising 0.4% and Germany’s DAX climbing 1.4% to a fresh intraday record.
Healthcare stocks attracted attention after reports that Bristol Myers Squibb and AstraZeneca held preliminary discussions over a potential merger that could create the world’s largest pharmaceutical company, with a combined value approaching $400 billion. AstraZeneca shares briefly fell nearly 7% following the report.
Asian markets painted a different picture.
Japan’s Nikkei 225 fell 1%, while South Korea’s KOSPI slumped more than 5%, extending a technology-led selloff that has gathered pace as investors reassess the sustainability of AI-related capital spending.
The weakness follows growing concerns that record investments in AI infrastructure may take longer than expected to generate meaningful returns, leading investors to rotate out of richly valued semiconductor and technology stocks. Those concerns have become one of the defining themes of global markets in recent weeks, particularly after several major technology companies reaffirmed plans to continue spending aggressively on AI infrastructure while offering limited visibility on the pace of future monetization.
Currency markets also reflected improving risk sentiment.
The Japanese yen strengthened to a three-month high after U.S. and Japanese authorities confirmed coordinated intervention to support the currency, while the weaker dollar added further support to gold and other commodities priced in the U.S. currency.
Markets will now turn their attention to July U.S. manufacturing PMI data later on Monday, alongside another busy week of corporate earnings, for fresh clues on the health of the world’s largest economy.