By Lawrence Delevingne and Nell Mackenzie

BOSTON/LONDON, ‌March 9 (Reuters) – Wall Street stocks gained, oil prices relented and U.S. Treasury yields dipped on Monday after President Donald Trump reportedly said he thinks the war against Iran “is very ​complete” and that the U.S. is “very far ahead” of his initial four- to five-week estimated ⁠time frame.

Stocks and bond prices had initially slumped as surging oil prices looked likely to stoke ​inflation around the globe, leading central banks to raise interest rates.

Oil prices soared by as much as 29% during the session as Saudi Arabia and other OPEC members cut supplies during the expanding U.S.-Israeli war with Iran. Prices then retreated from session highs as the U.S. ​and other Group of Seven (G7) countries considered ​tapping strategic petroleum reserves to limit inflation pressures from energy price increases. 

In post-settlement trade, U.S. crude was last down 5.32% to about $86 a barrel ​and Brent fell to $90 per barrel, a decline of 2.65%.

After initial losses, Wall Street stocks ended higher. The Dow Jones Industrial Average gained 0.6%, the S&P 500 ⁠added 0.8% and the Nasdaq Composite surged 1.3%.

The gains came despite Iran’s hardliners having staged a show of ​force on Monday, taking to the streets to proclaim their loyalty to new Supreme Leader Mojtaba Khamenei, whose rise appeared to dash hopes of a swift end to war in the Middle East causing havoc ‌on global markets.

EUROPEAN, ASIAN SHARES SINK

European shares had tumbled to their lowest in more than ‌two months, ​with the pan-European STOXX 600 down 0.6% in a third session of losses. The benchmark index shed 5.5% last week, its worst weekly performance in nearly a year.

The oil price spike was sobering for major oil importers ​in Asian markets, with Japan’s Nikkei closing down 5.2% after a 5.5% drop.

China, another big oil importer ​albeit with a huge stockpile of crude, saw its blue-chip index fall roughly 1%.

China on Monday said inflation had already picked up in February before the current oil surge, with consumer prices rising 1.3% on the year, not necessarily a negative development, given the country has long struggled with disinflation.

Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a note earlier on Monday that the U.S. equity market may still seem ‌placid but there are “extreme” rotations and stock dispersions beneath the surface.

“Over the past 80 years, war-induced ​oil shocks have not been kind to equities, as nearly every episode has catalyzed a recession and market selloff,” Shalett wrote. 

CENTRAL BANKS FACE INFLATION CONUNDRUM

U.S. ​Treasury yields pulled back from Monday’s initial surge after oil prices relented. The yield on the two-year note <US2YT=RR> was last down 0.4 basis points at 3.552%. It earlier reached 3.635%, the highest since November 20. The benchmark U.S. 10-year note yield <US10YT=RR> ​fell ⁠3 basis points to 4.102% after earlier trading at 4.216%, the ​highest since February 9.

Fed funds futures are now pricing in 77% odds of a rate cut in July, up from 67% earlier on Monday, and are fully pricing in a reduction in September.

The U.S. dollar was little changed against the euro and yen after gaining against both earlier on Monday ‌in a flight to safety.

Spot gold fell 0.53% to $5,142.37 an ounce, while bitcoin gained nearly 3% to $69,154.

(Reporting by Lawrence Delevingne, Nell Mackenzie and Wayne Cole; Editing by Thomas Derpinghaus, Bernadette Baum, Susan Fenton, Will Dunham and David Gregorio)

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