Markets signal investors are back in buying mode again after Kospi’s record surge while Trump gives peace a chance with latest Iran reversal

U.S. stock futures experienced a surge on Sunday, echoing the bullish sentiment from late last week, as President Donald Trump defied a major assault on Iran. Dow Jones industrial average futures surged 189 points, S&P 500 futures rose 0.41%, and Nasdaq futures jumped 0.89%. South Korea's Kospi index witnessed an unprecedented 18% surge on Friday, marking its largest single-day gain on record.

This surge could indicate that Korean investors are cautiously re-entering the market after a devastating sell-off last month, triggered by authorities curbing excessive leverage that fueled earlier market volatility.

Oil prices took a significant hit, plummeting 4.5% to $80.85 a barrel, while Brent crude fell 4.6% to $83.90, driven by hopes of a deal that would reopen the Strait of Hormuz. The U.S. 10-year Treasury yield fell 2.7 basis points to 4.718%. The pattern of repeated threats followed by a retreat in the Iran war continues, with Trump attributing his latest reversal to U.S. allies urging him to give diplomacy another chance.

However, experts believe Iran might be gaining the upper hand, as Tehran employs its proxies to expand the conflict across the region, notably the Houthis rebels threatening ships in the Red Sea attempting to bypass the Strait of Hormuz. Iran has also warned its Persian Gulf neighbors that they will be targets if there is a renewed bombardment, demonstrating that its long-range weapons can evade U.S. air defenses.

Dennis Citrinowicz, a former Israeli intelligence official who specialized in Iran, commented on X, noting that "last night's events underscore a reality that is becoming increasingly difficult to ignore: for now, Iran appears to hold the strategic advantage in deterrence." Wall Street is also focusing on labor market data arriving in the coming week, with ADP's private payrolls report expected on Wednesday, the Labor Department's weekly jobless claims tally due on Thursday, and the monthly jobs report on Friday.

Economists at Bank of America anticipate a gain of 85,000 jobs, with the unemployment rate expected to rise to 4.3% from 4.2%. Fed Chairman Kevin Warsh's recent dovish remarks, suggesting alternative data and market tools to combat inflation, have sent a shockwave through the central bank, potentially leading to a hawkish outcome.

The bond yield curve is considered an indicator of the Fed's commitment to price stability, and a steepening curve would imply markets still believe the Fed will take necessary actions to meet its mandate. A flattening curve would suggest the Fed is lagging behind, raising questions about its credibility.