Market Rally on Iran Deal Hopes Fails to Move Oil or Bonds

A Reuters report that US and Iranian negotiators are working towards a phased deal sparked a midday market rally on Thursday, but it failed to move oil or bond markets.

The proposed first step would have Iran reopen the Strait of Hormuz in exchange for the US lifting its naval blockade, possibly along with access to frozen Iranian assets. Stocks spiked on the headline, but oil barely blinked and stayed higher, with Brent still up around 2.5% near $105 after coming off a session high above $108.

The market that drives the inflation story did not buy it, as the 20+ Year Treasury Bond Fund (TLT) hit new multi-year lows and the 10-year finished well over 5%. When stocks rally on a headline that oil and bonds ignore, the stock move is usually the one that is wrong.

DePorre notes that this exact pattern has been seen several times this year. A hope-of-a-deal headline spikes stocks, the deal does not materialize or the sequencing falls apart, and the premium goes right back in.