Early on Nov. 2 Beijing time, US equity index futures extended modest gains, with Nasdaq futures up about 0.4%, S&P 500 futures gaining more than 0.2% and Dow futures edging higher. The shift in market sentiment was linked to new diplomatic signals emerging from the Middle East.
Iran said recently that a delegation's visit to Qatar was part of ongoing consultations with mediators including Doha and Islamabad. The Iranian foreign minister said the proposal currently under discussion is close to the framework of Iran's earlier seven-day plan, but Qatar suggested compressing the timetable to five days or even shorter. After consultations, Iran agreed to advance a two-day plan: on the first day, the US would honor a batch of commitments; on the next day, the Strait of Hormuz would reopen and shipping order would return to previous levels. Iran emphasized that reopening the strait and restarting negotiations would require the US to first meet the relevant conditions.
Those conditions were set out in the Islamabad memorandum of understanding and related letters, including establishing a new shipping route through the Strait of Hormuz, unfreezing Iranian assets, ending regional conflicts including in Lebanon, lifting maritime blockades, granting Iran oil export exemptions and removing US sanctions newly imposed on Iran after the memorandum. Iran said it was prepared for both defense and diplomacy, hoping the US would remain rational and prioritize resolving issues through negotiations.
Meanwhile, Israeli sources said US President Trump and Israeli Prime Minister Netanyahu held a direct call on Oct. 31 about the US-Iran negotiations, in a notably tense atmosphere. Netanyahu expressed concern about the Qatar-mediated negotiating process and urged Trump to resume military action against Iran as soon as possible after the US midterm elections on Nov. 3. Trump, for his part, wanted negotiations to continue and did not want Israel to disrupt the process, but his stance could shift markedly if talks failed.
In the oil market, seven major producers including Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman decided to keep production unchanged in December. The producers are still absorbing the impact of Middle East conflict on exports and are unlikely to adjust output policy further in the short term. Country capacity assessments will be completed in the fourth quarter and will provide the basis for 2027 production quotas. Major producers had raised output month by month from April through September this year before pausing increases starting in October.
In rates markets, traders continued to bet on further Federal Reserve tightening. Pricing showed the probability of the Fed holding rates steady in December at about 28%, while the probability of a 25 basis-point hike rose to about 72%. By January next year, the probability of holding rates unchanged falls to about 19%, the probability of a cumulative 25 basis-point hike nears 58%, and the probability of a cumulative 50 basis-point hike is about 22%.
