Brent crude plunged 12% on Monday. Emerging-market stocks and currencies jumped as traders bet the Iran conflict may be winding down.

Diplomatic signals send risk appetite higher

U.S. President Donald Trump said the White House is in contact with what he called a “respected” Iranian figure and announced a short pause in planned strikes, setting off a rapid retreat in oil prices and a broad move back into risk assets. He extended a deadline for Iran to reopen the Strait of Hormuz by five days before U.S. Strikes on Iranian power infrastructure would proceed. Trump also said discussions involving U.S. Special envoy Steve Witkoff and peace envoy Jared Kushner had taken place late Sunday, though he didn't name the Iranian counterpart.

Markets reacted fast.

Oil plunged as traders moved off worst-case supply-disruption scenarios and repositioned into equities and emerging-market assets. Brent crude fell to about $98.06 a barrel, down roughly 12.06% from recent highs, while West Texas Intermediate traded near $87.84, off about 10.58% by midafternoon Eastern.

Look, relief was immediate: asset managers and hedge funds that had been hedging against a protracted Gulf closure started to unwind those bets. That shift helped lift emerging-market stocks and currencies after weeks of stress tied to energy-price spikes and inflation worries.

Why emerging assets moved together

Emerging-market assets usually follow global risk appetite. When oil and other energy prices spike on war fears, many developing economies face bigger import bills, weaker currencies and faster inflation. Basically, when the military threat seemed to ease, even for a short time, traders started cutting energy risk premiums and moved back into higher-yielding emerging-market assets.

Currency traders pushed some EM currencies higher against the dollar as demand for carry and equity flows returned. Equity funds rotated out of energy and defense names and into beaten-down cyclicals and regional banks. Debt markets also rallied: sovereign credit spreads narrowed as default fears receded and local-currency bond yields fell in several markets.

That said, the move wasn't uniform. Oil exporters saw mixed reactions because lower oil helps global growth but can hurt government revenues in petrostates. Commodity importers and tourism-dependent economies stood to gain more from a steadier energy backdrop.

Safe havens split — gold fell, bitcoin gained

Safe-haven assets moved differently from each other. Spot gold tumbled more than 2% to around $4,395 an ounce at midday, reversing much of its earlier surge. Meanwhile Bitcoin climbed, trading above $70,000 in intraday sessions and gaining roughly 3–4% as some investors shifted speculative capital into crypto rather than traditional havens.

Gold's pullback partly reflected a massive unwind of leveraged positions that had piled into bullion during the early days of the conflict. At the same time, traders are weighing inflation expectations and central-bank policy signals, which complicate gold's role as a pure geopolitical hedge.

Policy and market cross-currents

Conflicting official signals made it harder to price risk. On one hand, President Trump's weekend posts suggested he was considering "winding down" operations after degrading Iran's missile and nuclear capabilities. On the other hand, reports of thousands of additional Marines deploying to the region and talk of possible ground operations created an undercurrent of tension that traders had to price.

That communications whiplash amplified volatility across oil and risk assets. CME FedWatch showed market participants shifting expectations for U.S. Monetary policy — with pricing reflecting a much slimmer chance of Fed rate cuts in 2026 — because energy-driven inflation uncertainty affects the Fed's calculations on both inflation and growth.

Where investors are putting money now

Portfolio managers said they were using the emerging-market rally to rebalance portfolios. Some funds took profits in defensive and energy-heavy positions and redeployed into cyclicals and technology-exposed names that had suffered during the shock. Passive strategies tracking global equity indexes also benefited as volatility gave way to a risk-on stance.

That repositioning appeared in fund flows: ETFs tracking U.S. large caps and Nasdaq products, which had lagged during the crisis, saw fresh buying. Fabio Bassi, who leads a team of strategists at JPMorgan, trimmed his year-end S&P 500 target to 7,200 from 7,500 amid geopolitical risks, yet his revised view still assumes upside from then-current levels if markets stabilize.

Speculators, meanwhile, remain cautious. Many hedge funds are hedging directional exposure with shorter-dated options and keeping some cash on hand in case tensions flare again. The message from traders: they'll buy the rally, but not without protection.

Outlook: volatility won't vanish

Despite Monday's relief rally, analysts warn the road ahead remains uncertain. Iran has continued attacks in the Persian Gulf, albeit at lower frequency than midweek peaks, which means the regime retains the ability to threaten Strait of Hormuz traffic. A real ceasefire or diplomatic settlement would likely drive crude much lower and lift broad risk assets, while renewed strikes or escalation would reverse Monday's gains quickly.

Investors say they will be watching diplomatic signals and concrete steps on energy flows more than rhetoric. Markets are alive to the possibility that what looks like a pause could be temporary — and that policy and military moves on the ground could flip sentiment again.

Still, for now, the relief rally moved beyond U.S. Equities: measured returns showed up across EM listed markets, local-currency debt and regional bond funds. Traders who had shorted emerging currencies or bought protection on sovereign bonds saw positions unwind as spreads compressed and yields fell.

ETF and market specifics to watch

Exchange-traded funds that track U.S. Large caps and technology names were highlighted by buy-side desks as tactical plays if diplomacy holds. The State Street SPDR S&P 500 ETF Trust and the Invesco QQQ Trust, which had been down more than 5% month-to-date, drew attention as potential beneficiaries of a sustained risk-on move. Portfolio managers cautioned, though, that these are tactical allocations, not broad strategic shifts, given the lingering uncertainty.

Oil-market microstructure also matters: refiners, shipping and insurance costs for Gulf transit track closely with any repeated spike in attacks. For emerging markets, local bond curves and central bank responses — especially in countries with high import dependence — will determine whether rallying currencies translate into real economic relief.

Related Articles

"a resolution to the conflict could be reached within five days or less," President Donald Trump said.