As of approximately 10:00 a.m. UTC on Tuesday, May 5, 2026.

TL;DR

  • US stock futures rebounded Tuesday morning: S&P 500 +0.4%, Nasdaq 100 +0.6%.
  • Brent crude pulled back 1.3% to below $113 per barrel after Monday's near-6% spike.
  • Iran's Foreign Minister Abbas Araghchi said talks with the United States are "making progress."
  • Emerging market equities, currencies, and bonds continued to decline even as developed markets steadied.
  • UK gilt yields (government bond yields) spiked as traders returned after a public holiday and caught up with Monday's sharp global yield move.
  • Bitcoin extended its May gains to nearly 6%, with crypto-linked stocks also moving higher.
  • AMD earnings later today will offer a key signal on AI infrastructure spending momentum.

What Happened

Financial markets on Tuesday morning showed a clear split across the globe. US equity futures staged a meaningful recovery from Monday's selloff, when US and Iranian forces exchanged fire in the Strait of Hormuz, Iran launched missile and drone attacks on the UAE, and President Trump announced "Project Freedom" , an operation to escort neutral ships through the waterway.

The Monday violence pushed Brent crude above $114 per barrel and sent US stocks lower. But by Tuesday morning, relative calm had returned to the Persian Gulf, and Iran's Foreign Minister Araghchi offered a notable diplomatic signal, describing US-Iran talks as "making progress."

That was enough for developed market investors to buy back in. European equities also advanced, with the Stoxx 600 rising 0.5%. Global bonds strengthened as Brent retreated from its peak.

The exception was emerging market assets. Bloomberg reported that emerging equities, currencies, and related debt continued to slide as investors reassessed the structural risk posed by an oil shock that shows no sign of ending quickly. Oil-importing developing economies face a double squeeze: surging energy costs and a stronger US dollar that makes their debt more expensive to service.

In the UK, traders returning after a Bank Holiday caught up with Monday's yield spike, pushing gilt yields sharply higher as money markets priced in a higher probability of Bank of England interest rate hikes.

Why Emerging Markets Diverged

The gap between developed and emerging market performance on Tuesday reflects a structural difference in how the Iran war and Hormuz crisis hit each group.

US and European equity markets have largely recovered their initial war-related losses, supported by strong technology earnings and the expectation that the US, as a net oil producer, can absorb a prolonged oil shock better than most. S&P 500 companies, led by chip manufacturers and AI-linked technology firms, helped the index rebound to near record highs in recent weeks before Monday's setback.

Emerging markets are more vulnerable for several reasons:

  • Oil importers: Large Asian, African, and Latin American economies that depend on imported oil face direct cost pressure from Brent at $112–114. Reuters documented growing fiscal strain across EM economies two months into the Iran war, with inflation rising and current account deficits widening.
  • Dollar strength: Risk-off conditions typically push capital toward the US dollar. A stronger dollar raises the local-currency cost of dollar-denominated EM debt and compresses corporate earnings in local terms.
  • Capital flight risk: Sustained geopolitical uncertainty prompts institutional investors to reduce emerging market exposure, particularly in smaller economies with thinner liquidity.
  • Limited policy space: Many EM central banks are already dealing with oil-driven inflation, which limits their ability to cut rates to cushion growth , as seen with the Reserve Bank of Australia's third consecutive rate hike this week.

Implications for Traders

Equity Traders

The Tuesday morning US futures rebound reflects optimism around two things: Iran's diplomatic signal and continued AI earnings momentum. AMD reports later today, and investors are watching whether the semiconductor giant confirms that enterprise AI infrastructure spending remains on track. If AMD delivers a strong beat and positive guide, it could reinforce the case that tech earnings are resilient enough to push US equities to new highs despite elevated oil prices.

For EM equity exposure, the picture is less encouraging. Short-term bounces remain possible if Iran diplomacy progresses, but the structural headwinds from oil-driven inflation and dollar strength have not changed. The ceasefire status risk-watch published earlier Tuesday covers the military backdrop in full detail.

Futures and Commodities Traders

Brent's pullback to below $113 suggests that Monday's spike was partly driven by the shock value of the US-Iran Hormuz exchange rather than a fundamental supply outage. The waterway remains largely blocked for commercial traffic, but the immediate risk of full-scale renewed conflict eased as Araghchi's comments filtered through markets.

Oil macro strategists at Bloomberg noted that "oil forwards are adjusting to the reality of ongoing supply disruptions, with prices shifting higher across the curve" and that "there remains a clear risk of escalation, pointing to a more prolonged stagflationary shock." This means the oil market is not pricing a near-term Hormuz reopening , it is pricing in a longer disruption at elevated levels.

Natural gas markets are also relevant given Hormuz handles roughly 20% of global liquefied natural gas (LNG) flows.

Crypto Traders

Bitcoin has extended May gains to nearly 6% as of Tuesday morning, with crypto-linked stocks also moving higher. The asset appears to be trading with a mild risk-on tilt when geopolitical fears ease slightly, rather than acting purely as a safe-haven hedge. That correlation can reverse quickly if Hormuz tensions reignite.

Potential Positives vs Negatives

Positives

  • Iran's FM describing talks as "making progress" is a meaningful diplomatic signal that could reduce the probability of a full ceasefire collapse.
  • A successful diplomatic resolution , even partial, such as a humanitarian corridor through Hormuz , could quickly take $10–20 off Brent crude and deliver a sharp relief rally across global equities and bonds.
  • AI earnings momentum (AMD, Alphabet, and others) provides an independent tailwind for US and European tech stocks even if energy markets stay volatile.
  • If oil eases sustainably, EM central banks gain room to pause rate hikes, supporting EM equities and bonds.

Negatives

  • Iran's "progress" comment is unverified and preliminary. Previous diplomatic signals have not translated into durable ceasefire terms, and Trump has publicly refused to confirm whether the original ceasefire remains in effect.
  • The Hormuz corridor remains functionally closed for most commercial shipping despite Project Freedom. Oil supply disruptions are ongoing, keeping energy inflation elevated.
  • UK gilt yields spiking adds a new fixed-income risk to the picture: if major central banks are forced to hike rates in response to oil-driven inflation, credit spreads could widen and equity valuations face pressure.
  • EM debt and currency fragility could escalate if capital continues flowing out of developing markets, potentially triggering a debt stress event in a smaller, oil-dependent economy.

What Could Happen From Here

Base Scenario (most likely)

Diplomatic back-channel talks continue at a slow pace. Brent holds in the $108–115 range. US markets trade sideways to modestly higher on AI earnings support. EM assets stabilize but do not recover meaningfully. The Hormuz corridor remains partially open under US escort but not fully operational. Confirmed by: Iran FM comments continue signaling dialogue; no new military exchanges reported. Invalidated by: new US-Iran military exchange or collapse of Project Freedom escort operation.

Upside Scenario

A concrete Hormuz framework is announced , even a limited commercial corridor agreement , before the end of the week. Brent drops toward $100 or below, US futures push to record highs, and EM assets stage a sharp relief bounce. Bitcoin could push toward $70,000+ on a broad risk-on shift. Confirmed by: official joint statement from US and Iranian negotiating teams; Hormuz ship-tracking data showing increased commercial transit volume. Invalidated by: Trump rejecting any formal framework; new Iranian military action near the strait.

Downside Scenario

Diplomatic talks break down. Iran responds to Project Freedom with renewed attacks on US or neutral vessels. Brent spikes back above $120, US equities give back Tuesday's gains, and EM assets see accelerated outflows. UK and European rate hike expectations spike further, pressuring global bonds. Confirmed by: UKMTO (UK Maritime Trade Operations) reports of fresh vessel attacks; Trump announcing expanded military operations. Invalidated by: 48-hour quiet period in the Persian Gulf; Araghchi makes further diplomatic statements.

What to Watch Next (24 Hours)

  • AMD earnings: Results after US market close today. A beat and strong AI-infrastructure guidance would validate the tech earnings bull case.
  • Iran FM follow-through: Any formal update on US-Iran negotiations from either the State Department or Tehran. Look for confirmation that dialogue is progressing via Reuters, AP, or official government statements.
  • Hormuz ship traffic: Bloomberg and Reuters ship-tracking data showing whether commercial vessels are moving through the corridor under Project Freedom escort.
  • UK gilt yields: Whether Tuesday's spike stabilizes or continues , this matters for global bond markets and rate hike pricing in Europe.
  • EM currency levels: Key currencies to monitor include the South Korean won (Seoul was directly drawn into the conflict after a vessel was attacked), the Indian rupee, the Turkish lira, and major commodity-importing EM currencies.
  • Brent crude: Whether the pullback below $113 holds or reverts on any new geopolitical headline.

Sources

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Header image source: pexels by Rene Terp. License: PEXELS.