One-page memo revealed: US and Iran closest to reaching an agreement! US and European futures surge, oil and bonds plunge

On Wednesday (May 6), tech stocks led the gains and Europe and US stock futures climbed; meanwhile, oil prices and bond yields declined due to market optimism that the US and Iran are close to reaching a peace agreement.

The MSCI All Country World Index rose 0.7%, reaching a new record high. In Europe, the Stoxx 600 Index rose 2.1%, led by basic resources and automotive stocks. Novo Nordisk's stock soared as much as 9.2% after its new Wegovy weight loss drug fueled first-quarter sales growth.

Earlier, the MSCI Asia Pacific ex-Japan Index surged 2.9%. The South Korean KOSPI Index resumed trading after the holidays and soared 6.5%, leading regional markets. Samsung Electronics surged 14%, with its market value surpassing $1 trillion and overtaking Berkshire Hathaway.

Rushil Khanna, Head of Ostrum Asia Equities at Natixis Investment Managers, stated: "Driven by the capital expenditures of US AI hyperscalers, the profit growth trajectory of Asia’s semiconductor, tech hardware, industrial, and materials sectors is beyond anything I have seen in a long time."

The US and Iran Near a One-Page Memorandum of Understanding

Nasdaq 100 futures rose 1.2% and S&P 500 futures gained 0.6%, with both indexes poised to extend gains on record highs. Axios reported on Wednesday that the White House believes the US is close to reaching an agreement with Tehran on a one-page memorandum to end the war and set the framework for more detailed subsequent nuclear talks.

The US believes it is close to reaching an agreement with Iran to end the nearly ten-week-long war. As China also joins the global diplomatic push to end the conflict, Axios reported that Washington and Tehran are working on a one-page memorandum of understanding, which would serve as a framework for further, more detailed nuclear negotiations.

Axios cited two US officials and two additional unnamed sources on Wednesday, saying that no agreement has yet been reached. The US expects Iran to respond to several key issues within the next 48 hours. Iran has yet to comment on the progress of the agreement.

(Source: Axios)

According to sources, this one-page memorandum of understanding with 14 items is being negotiated by Trump envoys Steve Witkoff, Jared Kushner, and several Iranian officials, through both direct communications and intermediaries.

Previously, Trump indicated he would temporarily halt an operation called "Project Liberty," which aimed to escort ships through the Strait of Hormuz. The Strait of Hormuz accounts for about one-fifth of global oil and liquefied natural gas shipments and has been blocked by Iran since late February, triggering a global energy crisis.

Geoff Yu, Senior Macro Strategist at BNY Bank Mellon, said: "The market continues to price in de-escalation and easing supply constraints. The road ahead remains bumpy, but the direction now appears clear."

Strong Momentum for AI

Meanwhile, a series of heavyweight earnings reports and financing deals underscore the robust momentum behind artificial intelligence investment. AMD soared 18% in US pre-market trading after data center spending led the company to raise its sales outlook. Memory chip manufacturer Samsung Electronics surged 16% in Korea, with its market cap reaching $1 trillion. Alphabet raised $17 billion to support AI-related expenditures.

In early US trading, driven by AMD’s results, multiple stocks related to AI infrastructure construction soared. Sandisk, Micron Technology, and Intel all jumped over 6%. Super Micro Computer rose 17% after its outlook showed cost control progress, boosting the market's confidence in its profitability. Power equipment stocks also advanced in tandem.

Oil Prices Plummet

Brent crude fell 6.1%, approaching $103 per barrel. The drop in oil prices allowed stock markets to climb further after Tuesday’s rally.

Chris Turner, Global Head of Markets at ING, said, "Stock investors still seem to be looking for entry opportunities and reacting quickly to positive news out of the Gulf region." However, he added, "The prospect of a permanent peace agreement remains highly uncertain, so oil prices still look set for wild swings."

Bloomberg macro strategist Skylar Montgomery Koning said, "For the stock market, the negative beta from rising oil prices has clearly diminished. Range-bound oil prices are enough to support equities. Although rising prices once put pressure on energy-importing countries, the S&P 500, dominated by tech stocks, largely held steady during those volatile periods."

New Developments on US-EU Tariffs

Elsewhere, US Ambassador to the EU Andrew Puzder stated that if the EU cannot ratify a long-delayed trade agreement soon, Washington will "relatively quickly" impose a 25% tariff on cars and trucks from the EU.

Puzder told Bloomberg TV in an interview: "Unless we see substantial progress, I think you’re very likely to see these tariffs quite soon."

Recently, President Trump threatened to impose a 25% tariff on European cars, blaming the EU for taking too long to approve the agreement, which was initially reached in July last year. Meanwhile, the EU has also expressed dissatisfaction with several of the Trump administration’s moves, arguing that these actions undermine Washington’s commitments under the agreement.

Global Bond Markets Stage a Rally

US and European government bonds surged, with the yield on the two-year US Treasury note down 2.3 basis points to 3.913%, and the 10-year Treasury yield slipping 7 basis points to 4.35%. Oil prices are still about 50% higher than they were at the onset of the conflict in late February. The 10-year Treasury yield, a crucial benchmark for global borrowing costs, has risen about 40 basis points in total.

Eurozone government bond yields declined in early trading. In terms of supply, Germany is the only issuer: it will auction €3.5 billion worth of Bunds maturing in November 2032, and plans to issue another €3.5 billion of Bunds maturing in August 2056 via tap. According to Tradeweb, the 10-year Bund yield dropped 4.1 basis points to 3.035%.

The US dollar temporarily fell to its lowest level since February. Once a haven during the Iran war, the dollar dropped 0.3% against major currencies, reflecting investors' anticipation of a potential agreement.

Investors watching the Federal Reserve’s moves will pay attention to the US April ADP private payroll data set for release later Wednesday.

Yen’s Sharp Rise Sparks Intervention Speculation

The yen surged to a more than two-month high against the US dollar, sparking speculation that Japanese authorities may have intervened in the market again after supporting the yen last week. The yen was up as much as 1.8% against the dollar, trading near 155.04, before giving back some gains to hover near 156.

Thomas Mathews, Asia Pacific Markets Head at Capital Economics in Wellington, said: "There’s some optimism surrounding the US-Iran ‘agreement’; authorities may see this as another good opportunity to boost the yen." He added, "However, this could also just be a result of thin trading and holiday volatility; it's better to assess its performance later in the week."

In early European trading, spot gold surged more than 3% to above $4,700. ING analysts Warren Patterson and Ewa Manthey said that concerns about a further escalation of the conflict continue to support gold's safe-haven appeal. However, they note that a more durable ceasefire would reduce inflation risks and in turn limit the possibility of a Fed rate hike, thereby supporting yield-less assets like gold.