Oil extends gains as Hormuz deal remains elusive

In early Monday trading, oil prices surged and US equity futures remained relatively stable, as investors awaited any developments in a deal to reopen the Strait of Hormuz. The benchmark Brent crude opened above $84 a barrel, having risen over 5% over the previous three sessions. S&P 500 contracts were flat, following a daily gain of 0.6% on Friday to hit a new record. The US dollar showed minimal movement against key currencies.

Negotiations between Iran and Oman on reopening the Hormuz Strait concluded on Saturday, with Tehran presenting a lengthy list of demands to Washington. These demands suggested any temporary relief for oil and gas supplies might be limited. Despite this, President Donald Trump indicated a willingness to wait for Iran's economic hardship to ease its position. His comments came after a series of threats of severe airstrikes on Iran, which he ultimately avoided, claiming he aimed to provide negotiations with a chance.

Economists remain cautious, but optimistic. My Bui, an analyst at AMP Ltd, noted that investors should not be overly pessimistic, as Trump is likely to avoid further threats due to his falling approval ratings. Bui pointed out that business as usual persists, with equities supported by solid fundamentals, robust economic growth, and rising productivity.

Asian markets are expected to rally in early trading, catching up to US counterparts after a sharp decline in the nation's labor market. Recent data revealed a surprise drop in July jobs and a revision downward in hiring during the previous two months, lowering the likelihood of a Federal Reserve rate hike at their September meeting. Bloomberg's data showed traders lowered the probability of a rate hike to around 43%, down from 64% the previous week.

Australian shares on the S&P/ASX 200 Index climbed 0.4% in Friday night, while Japan's benchmark index rose nearly 1%. This bullish sentiment could lead to an appreciation of Asian currencies. Lower US bond yields and a weaker dollar have contributed to this positive outlook. Strategist Wee Khoon Chong of BNY in Hong Kong highlighted that this environment is favorable for the Asia-Pacific region, driven by a weaker US dollar, reduced crude oil prices, and a general rise in equity sentiment.