Oil prices plunged more than 5% to reach three-month lows on Monday and stock markets jumped after the United States and Iran reached an initial agreement on ending the Middle East conflict and reopening the vital Strait of Hormuz.
Details of the deal, which would ease inflationary pressures globally and lessen the need for higher interest rates by potentially allowing desperately needed oil and natural gas to reach the global market through the critical waterway, were not immediately released.
Iran signaled implementation would not start until the signing, which key mediator Pakistan said would take place Friday in Switzerland. But challenges immediately loomed, including Israel insisting it would hold onto land seized in Lebanon.
Brent crude futures for August delivery plummeted 5.3% on Monday to $82.73 a barrel, while WTI crude futures for July delivery were down 5.5% at $80.22.
"Ships of the World, start your engines. Let the oil flow!" Trump wrote on Sunday and declared that the "great deal" which is "now complete" would bring "peace and security to the whole region."
Europe's early optimism drove both the STOXX 600 and FTSE Eurofirst to records. Asia's biggest markets had all leapt overnight, while futures markets, pointed to gains of 1.3% to 2% for Wall Street later.
Analysts say that the simmering conflict between Israel and Lebanon could also still lead to a breakdown of talks.
Trump will meet Middle Eastern leaders and attend a working session with Ukrainian President Volodymyr Zelenskyy during a G-7 summit in France this week.
Iran said traffic through the Strait of Hormuz would be regulated by it and Oman, a potential blow to the rules of free trade that suggests there might be a toll of some kind on transits.
Saxo Bank strategist John Hardy said the peace deal was "about as supportive as you can get" for markets, especially after the excitement triggered by the recent record-breaking $75 billion SpaceX IPO.
"What do you add on from here to get sentiment even bubblier?"
The news will be a relief for the crowd of central banks meeting this week, easing some pressure to tighten policy to head off an energy-driven rise in inflationary expectations.
Markets had already priced in a likely deal but the confirmation was enough to send down Brent crude 5%, to stand well off its May peak of $126.41, albeit still above the $67 where it traded before the war began in late February.
"We see Brent oil futures falling to $80 by the end of the year, assuming the strait does not close again," said Vivek Dhar, a mining and energy analyst at CBA.
"Our forecast implicitly assumes that oil and refined product exports can resume quickly through the Strait of Hormuz, but this view carries considerable uncertainty tied to the damage to oil and refinery assets."
Central banks are set to meet in the U.S., Britain, Japan, Australia, Switzerland, Sweden, Norway and Russia this week, with Japan considered likely to lift rates this time.
The Federal Reserve (Fed) is widely expected to leave rates at 3.50% to 3.75% on Wednesday at Chair Kevin Warsh's debut meeting.
The statement, economic projections and news conference will be scrutinized for any signs of the Fed dropping its easing bias as officials grow more hawkish on inflation risks.
Saxo Bank's Hardy said the change of hands was set to be the biggest at the world's most influential central bank since Ben Bernanke succeeded Alan Greenspan in early 2006.
"The whole communication strategy is going to be completely different under Warsh," he said. "They are going to hold their cards a lot closer to their chest."
Investors were quick to trim the chance of a Fed hike this year, with December futures edging up four ticks while a move as early as October is now priced around 30%.
Treasuries rallied on hopes that oil prices would now fall sustainably and lessen the upside risks for inflation.
Yields on 2-year notes dropped 6 basis points to 4.02%. The equivalent two-year German yield, sensitive to European Central Bank (ECB) interest rate expectations, also fell 4 basis points to a two-week low of 2.571%.
The drop in yields and general improvement in risk pulled the U.S. dollar broadly lower, with the euro rising 0.4% to $1.1617 , while sterling rose 0.3% to $1.3446 .
The dollar fared slightly better on the yen at 160.00 , which is stuck in a bear trend even though the Bank of Japan is expected to raise rates by 25 basis points to 1% on Tuesday.
The Bank of England (BoE) is expected to hold rates at 3.75% on Thursday and through 2026, with policymakers seen in no rush to tighten. The BoE's vote split and monetary policy report will be of interest.
Top-tier British data includes May inflation and retail sales, and April employment. Thursday's Makerfield election will also be watched, as a win for Labour Mayor Andy Burnham could set up a leadership contest with Prime Minister Keir Starmer.
In commodity markets, the drop in yields helped non-interest-paying gold climb 2.5% to $4,322 an ounce, while in the crypto markets, bitcoin was also 2.5% higher, at $65,633.
