Stocks and bonds rally after Axios reports US Iran closing in on deal

• Europe's STOXX 600 surged 2.2% with banks and miners leading gains, while oil and gas stocks fell on prospects of reduced geopolitical tensions
• U.S. 10-year Treasury yields dropped 6 basis points to 4.35%, while European bonds outperformed with German 10-year yields falling 7.5 bps to 2.99%
• The U.S. expects Iranian responses on key points within 48 hours, marking the closest the parties have been to an agreement since the war began

Summary: Markets Rally on Reports of US-Iran Deal Progress

Key Development:

Global financial markets surged Wednesday following an Axios report that the U.S. and Iran are nearing agreement on a one-page memo to end their conflict. The U.S. expects Iranian responses on key points within 48 hours, though officials cautioned nothing has been finalized. Reuters could not independently verify the report.

Market Movements:

*Equities:* Europe's STOXX 600 jumped 2.2%, led by banks and miners. Energy and economy-exposed stocks outperformed, while oil and gas stocks declined.

*Bonds:* Fixed income rallied across markets. U.S. 10-year Treasury yields fell 6 basis points to 4.35%. European bonds outperformed, with German 10-year yields down 7.5 bps to 2.99% and two-year yields dropping 10 bps to 2.658%. British and Italian yields declined more sharply, falling 10 bps and 12.5 bps respectively.

*Currencies:* The U.S. dollar weakened, with the euro and pound both rising 0.6% to $1.1762 and $1.3618 respectively.

*Commodities:* Oil prices tumbled on the prospect of reduced Middle East tensions.

Market Implications:

The potential diplomatic breakthrough prompted investors to scale back expectations for European Central Bank rate hikes. The risk-on sentiment benefited cyclical sectors while pressuring safe-haven assets and energy stocks. Markets are positioning for reduced geopolitical risk and potential easing of inflationary pressures from lower oil prices.

Caveat:

Officials emphasized this represents the closest the parties have been to an agreement since the conflict began, but significant uncertainties remain until final terms are confirmed.