Global shares were mostly higher Monday and oil prices slipped nearly 7% as the U.S. and Iran paused strikes over the weekend following two weeks of attacks while discussing a possible return to negotiations on an interim cease-fire deal.
The Pentagon did not respond to questions about the pause in attacks on Iranian coastal areas and infrastructure after nearly two weeks of escalating fighting sparked by Iran's firing at ships trying to transit the Strait of Hormuz.
But markets reacted with relief. U.S. futures surged early Monday and the price of a barrel of Brent crude, the international standard, dropped 6.8% to $85.49.
U.S. benchmark crude dropped 7% to $83.06 per barrel.
"Oil's sharp retreat at the Monday open did more than knock a few dollars off the barrel. It loosened the geopolitical knot that had been tightening around equities, currencies, bonds and central banks for most of July," Stephen Innes of SPI Asset Management said in a commentary.
Brent had reached $100 per barrel as the conflict, which reduced oil shipments via the Strait of Hormuz, spilled over to the Red Sea, hindering exports from the world's top exporter, Saudi Arabia, via the Bab el-Mandeb Strait to Asia.
Fewer than 10 commodity vessels passed through the Strait of Hormuz daily during the weekend, shipping data from Kpler showed.
"Any rebound in flows through the Strait of Hormuz is likely to prove slow and partial, as many shippers remain wary and will want greater confidence in their safety before they bring more empty ships into the Strait," MST Marquee analyst Saul Kavonic said.
In addition, ship traffic through the Bab el-Mandeb Strait fell on Sunday after Yemeni Houthis attacked Saudi oil installations along the Red Sea coast, although a third Chinese supertanker exited via the Bab el-Mandeb Strait. Societe Generale analysts estimate that each month without a resolution in the Red Sea would add at least $10 a barrel to the oil price.
Some analysts expect markets will remain supported if crude supplies continue to be disrupted by ongoing shipping risks in the Middle East and Russia's war on Ukraine.
"As the Middle East conflict widened to the Red Sea and Ukrainian drones struck Russian ships and refineries... sustained (supply) disruption would likely keep oil prices elevated and continue to pose upside risks to global inflation," UOB analysts said in a note.
Ukraine said it hit several Russian oil sites over the weekend.
Meanwhile, shares in Chinese memory chipmaker CXMT soared 466% on Monday as they began trading on Shanghai's technology board. The company jumped to become China's most valuable listed company with an estimated market capitalization of 3.3 trillion yuan (nearly $490 billion).
In early European trading, Germany's DAX gained 1.6% to 25,497,42 and the CAC 40 in Paris was up 0.8% at 8,436.94. Britain's FTSE 100 rose 0.5% to 10,784.00.
The futures for the S&P 500 and Dow Jones Industrial Average were up 1%.
In Asian trading, Japan's benchmark Nikkei 225 rose 0.5% to 64,931.19, while the Kospi in South Korea advanced 1% to 6,755.75.
Hong Kong's Hang Seng climbed 1% to 25,207.18, while the Shanghai Composite index gained 1.2% to 3,858.25.
In Australia, the S&P/ASX 200 surged 1.4% to 8,894.00.
Taiwan's Taiex slipped 0.1% and the Sensex in India added 1.1%.
On Friday, the S&P 500 barely budged, picking up less than 0.1% and notching its second straight losing week for the first time since March.
The Dow industrials rose 0.5%. The Nasdaq composite index slipped 0.6%, weighed down by sharp losses for heavyweights like Micron Technology, which fell 7%, and Broadcom, which lost 2.7%.
Recent surges in energy prices and fresh tariffs announced last week by the administration of U.S. President Donald Trump could result in hotter inflation, which has been squeezing consumers and looming over the Federal Reserve's (Fed) interest rate policy.
The Fed meets this week, though rising inflation has dashed hopes for an interest rate cut anytime soon. Wall Street has been leaning toward a potential rate hike to tamp down higher prices.
Higher energy costs are taking up a bigger share of household budgets, which have shifted toward more basic needs, like gasoline.
In the U.S., a gallon of gasoline costs $4.11, according to AAA. That is still lower than this spring as the conflict in Iran expanded, but almost a dollar higher than last year at this time.
"Oil is the fastest-moving tax in the global economy," Innes said.
When crude rises sharply, consumers feel it at the fuel pump, airlines and transport companies feel it in their operating costs, manufacturers feel it in their logistics, and central banks begin worrying that the initial supply shock will spill over into broader inflation expectations," he noted.
Meanwhile, corporate earnings reports are focusing attention on the sustainability of broader profits from a boom in spending on artificial intelligence.
Tech giants like Alphabet and Nvidia have been spending heavily to expand AI capacity and investors increasingly are questioning whether they will generate profits to justify the massive stock values that have pushed markets higher throughout the year.
In other dealings early Monday, the U.S. dollar slipped to 163.56 Japanese yen from 163.64 yen. The euro rose to $1.1399 from $1.1398.
