Oil sinks 6%, stock futures jump as US and Iran pause attacks

The two-week US-Iran bombing campaign has halted, sending crude tumbling and equity futures higher as focus shifts to the Fed and Big Tech earnings.

The sudden de-escalation between Washington and Tehran removed a geopolitical risk premium that had pushed Brent crude above $100 a barrel, with US stock-index futures rallying Sunday evening as traders priced in lower energy costs and reduced tail risk.

"The pause is tactical rather than genuine, but for markets, any reduction in headline risk is a near-term positive," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "The question is whether this lasts beyond the Fed meeting."

Brent crude fell as much as 6% to near $94 a barrel in early Asian trading, while WTI dropped below $88. S&P 500 futures gained 0.8%, and Nasdaq 100 futures rose 1.1%, as the 10-year Treasury yield edged lower to 4.12%. The dollar index slipped 0.3% against a basket of major currencies.

The lull in hostilities comes at a critical moment for financial markets. The Federal Reserve's two-day policy meeting begins Tuesday, with swaps markets pricing a 78% probability of a quarter-point rate cut. Apple Inc., Microsoft Corp., Amazon.com Inc. and Alphabet Inc. are among the megacap companies reporting earnings this week, representing a combined market capitalization of more than $12 trillion.

The Pentagon suspended its 13-night bombing campaign late Friday, with no US attacks reported Saturday or Sunday, according to Reuters. Iran also held fire for two days, with a senior Iranian official telling Reuters that Tehran would maintain the pause as long as the US does. "Iran's position remains 'attack for attack': if the attacks stop, Iran will also halt its operations," the official said.

US Ambassador to the United Nations Mike Waltz told Fox News that President Donald Trump had decided to pause attacks "to give talks some space." The decision followed a Friday meeting where Pentagon Chief of Staff Dan Caine raised concerns about depleted Patriot air defense missile stocks, and Admiral Brad Cooper, the overall commander of US forces in the Middle East, advised halting the campaign because it had reached the limits of its effectiveness, according to CNN and Axios.

Strait of Hormuz Risk Premium Dissipates

The conflict had centered on the Strait of Hormuz, through which about a fifth of the world's oil flows. Iran had targeted shipping in the strait, while US forces struck bridges and tunnels in southern Iran. Iran retaliated by hitting water desalination plants in Gulf Arab states, and Houthi allies in Yemen announced a blockade on Saudi oil in the Red Sea, pushing Brent above $100 for the first time since May.

The last time a US-Iran confrontation escalated to direct strikes was in January 2020, when a US drone strike killed General Qasem Soleimani. Brent crude spiked 4.5% in the immediate aftermath but reversed within two weeks as both sides signaled de-escalation.

Fed and Earnings in Focus

With geopolitical tensions easing, investors are refocusing on the macro calendar. The Fed is widely expected to hold rates at 5.25% to 5.50% at the conclusion of its July meeting on Wednesday, though markets are pricing a 78% chance of a cut at the September meeting, according to CME FedWatch. Any shift in the Fed's statement language regarding inflation or the labor market could reset those expectations.

Apple reports fiscal third-quarter results on Thursday, with analysts projecting revenue of $84.5 billion, according to consensus estimates compiled by Bloomberg. Microsoft, Amazon and Alphabet are also scheduled to report, making this the heaviest week of the earnings season.

This article is for informational purposes only and does not constitute investment advice.