By Rodrigo Campos and Amanda Cooper

Stocks across the globe on Tuesday were headed for their largest quarterly percentage increase in six years, while Brent oil was on track for its largest quarterly drop since 2020, as traders kept tabs on a fragile ceasefire between the United States and Iran.

On the last day of the second quarter, the U.S. dollar was set to rise against a basket of peers TVC:DXY for a fourth straight quarter, pushing the yen to a 40-year low as expectations for U.S. interest rate hikes shifted dramatically. Emerging market currencies as a bloc (.MIEM00000CUS) gained over 1% to the greenback throughout the quarter.

In energy markets, the Strait of Hormuz has reopened gradually and haphazardly as hostilities between the U.S. and Iran receded into a fragile ceasefire, knocking almost 40% off the price of Brent oil ICEEUR:BRN1! this quarter.

A seemingly unstoppable boom in artificial intelligence stocks kept the equities rally going for the quarter, with South Korea's KOSPI KRX:KOSPI up 68% and Taiwan's benchmark TWSE:TAIEX up 45%. The Nasdaq Composite added more than 20%. The MSCI All-World index EURONEXT:IACWI has gained 14% so far and touched a record high earlier this month, marking its best quarterly performance since 2020. Emerging Market stocks CBOE:EFS are up 23% for the period.

Europe's STOXX 600 TVC:SXXP, which does not have nearly as many AI beneficiaries as many Asian or U.S. indexes, was still up nearly 10% for the quarter, having risen every month since March.

"Investors can't see an end in sight to this bull run," said David Morrison, senior market analyst at Trade Nation. "Whenever there's a bit of a selloff, we seem to be in a situation where you get a fresh impetus to buy."

For the day, the Dow Jones Industrial Average DJ:DJI rose 126.78 points, or 0.25%, to 52,309.52, the S&P 500 CBOE:SPX rose 28.81 points, or 0.39%, to 7,469.63 and the Nasdaq Composite TVC:IXIC rose 207.36 points, or 0.81%, to 26,029.22.

MSCI's gauge of stocks across the globe EURONEXT:IACWI rose 5.31 points, or 0.48%, to 1,117.36. The pan-European STOXX 600 TVC:SXXP index rose 0.78%, while Europe's broad FTSEurofirst 300 index FTSE:E3X rose 20.66 points, or 0.81%, while emerging market stocks CBOE:EFS rose 16.86 points, or 0.99%, to 1,723.79. Japan's Nikkei TVC:NI225 rose 594.21 points, or 0.86%, to 70,062.32.

THE WINNING DOLLAR

The dollar has been the standout winner this quarter among developed currencies, gaining 1.4% TVC:DXY against a basket of peers. Yet emerging market currencies have strengthened 1.3% this quarter against the greenback.

Investors are amassing bullish positions at a record pace thanks to a remarkable re-pricing of the U.S. interest rate outlook, which has flipped from cuts to hikes, due to the strength of the U.S. economy and persistent inflationary pressures beyond energy prices. Traders are pricing in at least one rate hike by the Federal Reserve by the end of this year, compared with earlier expectations of rate cuts.

The world's most influential central bankers are in the Portuguese town of Sintra this week for the European Central Bank's annual meeting and no one will be more in the spotlight than new Federal Reserve Chair Kevin Warsh, who is scheduled to address the gathering on Wednesday.

The dollar's rise has partly driven gold TVC:GOLD to a 14% quarterly drop, its largest such fall in more than a decade, while the yen FX_IDC:USDJPY has been driven to its weakest point in 40 years to trade around 162.38 per dollar on Tuesday. Traders were on edge about a possible Japanese intervention, with Finance Minister Satsuki Katayama issuing another warning.

Katayama's comments "avoided the verbal escalation that often precedes a buying effort, instead reiterating that authorities stand ready to respond at any time," said Karl Schamotta, chief market strategist at Corpay.

That said, "we would note that Thursday's non-farm payrolls report and Friday's Independence Day holiday — when U.S. liquidity will thin dramatically — could provide attractive opportunities for wrong-footing speculative short positions," Schamotta said.

Brent August crude futures ICEEUR:BRN1!, which expire on Tuesday, were flat on the day. The contract was on track for a third straight monthly decline, down about 20% so far in June and 38% for the quarter. The more actively traded September contract ICEEUR:BRN1! was also flat. U.S. crude NYMEX:CL1! was on track to fall 30% this quarter.

"I wouldn’t say the market has priced out a risk premium, but previously stranded ships have become available with the increase in ships moving out of the Gulf, creating a temporary wave of new supply," UBS analyst Giovanni Staunovo said.

Morgan Stanley said it now models an implied global oil market surplus of 4.8 million barrels per day in 2027.