Iran declared it would cease its attacks as long as the United States did the same, amid U.
S. military concerns about ammunition shortages.
Despite this, Yemen's Iran-aligned Houthis attacked Saudi oil facilities along the Red Sea, threatening a key global oil trade route.
Sally Auld, group chief economist at NAB, said, "Net, it looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides."
The lull in fighting over the Strait of Hormuz caused Brent crude to fall 4.7% to $92.27 a barrel, while U.
S. crude dropped 5.0% to $84.89.
The oil price retreat eased inflation concerns and slightly reduced the chances of Federal Reserve rate hikes ahead of its Wednesday meeting.
Goldman Sachs analysts noted, "Investors see the outcome of the July meeting as unusually uncertain, likely because the Fed has been split recently, Warsh's own position remains unclear, and some of the re-escalation with Iran occurred during the blackout period."
"There will likely be at least one dissent in favour of a hike, but most voters appear unlikely to push for a move this week after the softer June inflation data," they added.
The Bank of England and Bank of Japan are expected to hold steady during their upcoming meetings while monitoring inflation risks.
Equities responded positively to the drop in oil and yields, with S&P 500 futures up 0.8% and Nasdaq futures rising 1.3%.
European and Asian markets also saw modest gains.
Chinese chipmaker CXMT Corp surged 500% in its Shanghai trading debut after raising $8.6 billion in Asia's largest IPO this year.
According to LSEG IBES data, about one-third of S&P 500 companies are expected to report earnings this week, with gains on track for a 26.5% year-over-year increase.
A Wall Street Journal report revealed Nvidia was negotiating a $250 billion backstop for OpenAI related to a data center project, highlighting significant AI-related investments.
Upcoming U. S.
economic data releases include advance Q2 GDP, June PCE price index, personal income, consumption, and employment indicators.
The eurozone will release flash Q2 GDP, economic sentiment, consumer confidence, inflation, and unemployment figures.
The drop in oil prices contributed to a 4 basis point fall in 10-year Treasury yields to 4.63%, with the dollar weakening broadly and the euro rising 0.3% to $1.1408.
The Singapore dollar strengthened following an unexpected monetary policy tightening, while the Indonesian rupiah weakened after the central bank governor's surprise resignation, raising investor concerns.
Gold prices rose 1.3% to $4,103 an ounce amid falling yields.
