The ASX 200 is roaring back on Tuesday. Here’s why

Following three consecutive trading days of declines, the S&P/ASX 200 Index (ASX: XJO) is off to the races today.

In early morning trade on Tuesday, the benchmark Aussie index is up 1.3% at 8,473 points.

Turning to the two biggest stocks on the exchange, BHP Group Ltd (ASX: BHP) shares are up 3.7%, and Commonwealth Bank of Australia (ASX: CBA) shares are up 1% at this same time.

Meanwhile, tech stocks are enjoying a strong day, with the S&P/ASX All Technology Index (ASX: XTX) up 1.1%. And with gold holding steady overnight, Australia’s gold miners are rallying, with the S&P/ASX All Ordinaries Gold Index (ASX: XGD) up 5.1%.

And offering some insight into what’s lifting investor sentiment today, the S&P/ASX 200 Energy Index (ASX: XEJ) is down 2.7%.

So, what’s happening?

What’s sending the ASX 200 surging today?

The Australian market is following the US stock markets higher today.

On Monday (overnight Aussie time), the S&P 500 Index (SP: .INX) closed up 1.2%, while the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) closed up 1.4%.

US and ASX 200 investors have responded positively to the prospect of potential peace talks with Iran, an idea floated on Monday by United States President Donald Trump.

Trump had initially given Iran 48 hours to fully reopen the critical Strait of Hormuz shipping route. But on Monday, he offered Iran a five-day reprieve, citing talks with a high-level Iranian official.

While Iran denied any talks were underway, the prospect of a de-escalation in hostilities sent the Brent crude oil price down 10.4% overnight. Brent crude oil is currently trading for US$100.48 per barrel. Brent peaked near US$120 per barrel last week.

Should the oil price “fall like a rock” upon the reopening of Hormuz, as Trump suggested, it will greatly reduce global inflationary pressures and the resulting need for interest rate hikes from the world’s central banks.

And that, clearly, would be good news for many ASX 200 companies.

What are the experts saying?

Commenting on Trump’s announcement that’s sending the ASX 200 surging today, Chris Larkin at E*Trade from Morgan Stanley said (quoted by Bloomberg):

The market woke up to some potentially good news. But follow-through on any relief rally will likely require tangible follow-through on the geopolitical front. We’re still living in a headline-driven market.

Edward Jones’ Brock Weimer was also cautiously optimistic. He said:

Although this change in rhetoric is an encouraging development, we think the clearest indication of meaningful de-escalation will be whether crude oil flows through the Strait of Hormuz are able to recover.

A number of analysts also pointed to the potential of a sizeable rebound for international and ASX 200 stocks, if the Iran war winds down.

“The conditions for a rally are very high, if geopolitical tensions ease, considering one of the largest short positions on US stocks that we’ve ever seen,” Citadel Securities’ Scott Rubner said.

And we’ll leave off with the Bloomberg strategists, who noted:

Highly negative positioning leaves room for sharp stock market rebounds on any hint of an Iran off-ramp, though the bigger backdrop now argues for a wider trading range that remains tilted lower even if hostilities end tomorrow.

The post The ASX 200 is roaring back on Tuesday. Here’s why appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.