Key Takeaways
- Global stock markets jumped on Wednesday after the US and Iran agreed to a two-week ceasefire.
- Brent crude oil prices fell below $100 for the first time in more than two weeks, but remain up sharply from before the war’s start.
- Markets will now be watching to see whether the ceasefire can hold and how negotiations for a permanent deal evolve over the coming weeks.
Oil prices dropped and European stocks rose but fell back from their best levels Wednesday following news that the US and Iran had agreed to a two-week conditional ceasefire.
The Morningstar Europe Index was up around 3% as travel and leisure stocks led the rally with double-digit gains, while energy stocks fell by a similar measure. Despite the rally, the Europe index is still down roughly 4% from before the Iran war began.
The Morningstar US Market Index was up 2.4% in morning trading.
Stocks rallied as Brent crude oil futures plunged 13% to $95 per barrel, its lowest intraday level in four weeks, while West Texas Intermediate crude oil futures fell 15% to $96. However, Brent crude oil prices remain some 30% higher than before the war.
The deal was struck shortly before US President Donald Trump’s deadline for Tehran to reopen the Strait or face strikes that he said would destroy a “whole civilization.”
“The suspension of US bombing in Iran has given markets hope that a longer-lasting peace deal will be found and driven oil prices down heavily this morning,” says Morningstar chief European markets strategist Michael Field.
Outlook Hinges on Pace of Shipping Recovery
Markets will now be watching to see whether the ceasefire can hold and how negotiations evolve over the coming days. Talks for a more permanent deal between the US and Iran are due to begin in Islamabad on Friday.
“The most important question for markets will be to what extent does shipping via Hormuz pick up in the coming days,” Deutsche Bank analysts write. Shipments through the maritime gateway have come to a near standstill since the conflict began five weeks ago, halting global supplies of energy and other critical goods.
Under the ceasefire, both sides agreed to allow shipping to resume through the critical Strait of Hormuz waterway while Washington and Tehran begin negotiations on a more permanent agreement.
Government bonds rallied on hopes of improved prospects for the global economy. Yields on 10-year German bunds were down 0.16 percentage points to 2.91% while those for 10-years were 0.19 percentage points lower at 4.71%. Gold prices were up 2.5% to $4,816.
Field nevertheless struck a cautious note over a sudden market recovery. “It will take more than hope for equity markets to fully recover their losses from the Iran war, but a resumption of normal oil supply from the region will certainly help,” he says.
