(Bloomberg) — The US and Iran’s failure to strike a peace deal over the weekend is set to weigh on market sentiment and lift demand for safe haven assets on Monday, according to analysts.
The two sides couldn’t reach an agreement during talks in Pakistan, which is likely to disappoint investors who had added exposure to risk assets last week after the countries announced a ceasefire. Vice President JD Vance said negotiators will return to the US without a deal after Iran didn’t give a commitment it wouldn’t seek a nuclear weapon.
The dollar is expected to rise on Monday, after falling 1.4% last week, along with oil prices, analysts said. Equities broadly should slide. The immediate outlook for Treasuries is more mixed, as safe-haven flows joust with inflation concerns. Crude oil markets will take their cue from persistent constraints in flows through the Strait of Hormuz. Gold may catch a bid.
Analysts also said the scale of market reaction may be limited if investors take the view that the talks represent only a temporary setback for hopes of peace.
Kyle Rodda, analyst at Capital.com Inc.
For Treasuries, the base case is a knee-jerk bid at the open, followed by two-way price action as markets weigh safe-haven demand against the inflation read. Whether that bid holds depends entirely on where oil opens. If oil pushes higher on Hormuz concerns, inflation expectations reprice quickly and put a floor under yields. That limits how far the duration rally can run.
The key question for Monday is whether markets interpret this as a temporary breakdown in negotiations or a structural collapse of the ceasefire framework. That distinction will determine whether the risk-off move fades quickly or extends further. Obviously the situation is pretty fluid, so we will have to see whether there’s any new developments in talks when they pick up again or if the public rhetoric from either the US and Iran turns belligerent again.
Charu Chanana, chief investment strategist at Saxo Markets
The talks ending without a deal is a setback. For markets, this means the relief trade is likely to fade. Oil may see fresh gains, risk sentiment takes a hit again, and Hormuz is likely to remain a live choke-point risk even if it is not fully shut.
But this is not a shock given how far apart the two sides were on nuclear guarantees and Hormuz. For the dollar, that argues for some renewed safe-haven support, but probably not a full-blown surge unless we see a fresh military escalation. Gold may get the benefit of renewed geopolitical hedging, but without markets fully reverting to the worst-case inflation shock.
Fiona Lim, senior strategist at Malayan Banking Berhad
There could be some disappointment but this is not completely out of expectations. The USD may see further buoyancy when markets open tomorrow. Certain Asian currencies, notably net importers of energy — KRW, PHP, JPY, THB — had started to weaken into the weekend on Friday and could remain under pressure this week.
Kenneth Goh, director of private wealth management at UOB Kay Hian Pte.
The failure to reach a deal keeps a geopolitical risk premium in the market. Historically, this type of breakdown has seen markets lean into safe-haven assets at the open, and that has meant a bid in both the dollar and Treasuries.
The more important dynamic comes after. If the Strait of Hormuz remains constrained, markets shift from a pure risk-off move into a stagflation risk scenario.
Dilin Wu, strategist at Pepperstone Group Ltd.
The failure to reach an agreement leaves uncertainty firmly in place. In the very near term, a stronger dollar alongside modestly lower yields is a fairly reasonable pricing outcome. The reaction in Treasuries is likely to become more complex after the initial headline response fades. Front-end yields may still drift lower on safe-haven demand, but any sustained upside in oil would quickly re-anchor inflation expectations higher, putting renewed upward pressure on the long end.
On Monday, we are also likely to see energy and defense sectors outperform the broader market, with a clear upward gap at the open. Energy is the most direct beneficiary of a supply-side contraction, while defense reflects a rising and more persistent geopolitical risk premium. However, the magnitude of the move will depend on two key factors — the sustainability of the oil price strength and whether the market confirms that this is a prolonged supply shock, rather than just a short-lived sentiment-driven reaction.
Nick Twidale, chief market analyst at AT Global Markets Australia Pty
I would think we will see oil open higher alongside the dollar on Monday due to risk-off. Stocks are expected to take a significant hit and yields to push higher. The disappointment that the Strait of Hormuz was still seeing less than 10% of normal traffic was key to me in the last few days. Most investors would have been hoping for a lot more shipping to have gone through the strait after the ceasefire was announced.
Dionissios Kontos, co-founder of Meyka AI, an artificial intelligence-driven market analysis firm
The nuance is worth watching: Iran’s foreign ministry left the door open for further talks, so this isn’t a full collapse, just prolonged uncertainty. That matters for how violent or measured Monday’s reaction is.
On sectors, energy is probably the loudest story Monday. Hormuz is still effectively blocked and with no deal, oil supply uncertainty stays elevated. Defence names could see some interest but a lot is already priced in. Shipping and airlines remain under pressure, and growth/consumer discretionary could face risk-off rotation headwinds.
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