Signal of de-escalation in the Middle East: markets rally and oil plunges after the ceasefire (video)

In particular, the announcement of a two-month ceasefire between the United States and Iran by Donald Trump sent a strong signal of de-escalation in the Middle East, prompting an immediate reaction in international markets with a strong rally in stock markets and a significant drop in oil prices. Investors reacted positively to signs of a resumption of energy flows through the strategic Straits of Hormuz, which reduced fears of new energy crisis and pushed key stock market indices higher, while Brent crude oil retreated below the psychological $100 a barrel mark, signalling relief for the global economy and restoring optimism in energy and capital markets.

Oil prices slid below $100 a barrel while shares marked a jump today after US President Donald Trump announced a cease two-week ceasefire with Iran which created a sense of relief in markets amid hopes of a resumption of oil and gas flows through the Strait of Hormuz.

Tremendous relief

Trump announced the ceasefire with less than two hours left before the expiration of his ultimatum to Iran to reopen the Strait of Hormuz.

“It’s a huge relief to see that we finally have a ceasefire between the U.S. and Iran,” said Nabil Milali, a portfolio manager at Edmond de Rothschild, adding that he believed Trump had calculated that further escalation would backfire.

European stocks rose 4 percent after strong gains in Asian markets. Wall Street futures were opening with gains of 2.7%-3.5%.

The market reaction

The pan-European STOXX 600 index rose 3.6% earlier today and is heading for its biggest daily jump in a year if the momentum is maintained.

The rise was also reflected in regional markets, with Germany’s DAX up 4.7% earlier, while Britain’s FTSE 100 rose 2.5%.

Energy markets reacted quickly, with Brent retreating below $100 a barrel.

Brent oil futures were down 16% at $91.80 a barrel a short while ago, while U.S. crude futures fell 18% to $92.62 a barrel.

Investors on hold

“Markets can deal with the intricate details later. For now, they have the green light to rally,” commented Matt Simpson, a senior analyst at StoneX.

Beyond the immediate relief, investors want to see if the ceasefire will lead to a broader resolution before making big moves.

“Does this mean people will take new risks? No, it doesn’t,” commented Martin Wetton, head of financial markets strategy at Westpac. “There will have to be a lasting peace (for things to change). People are not actually taking risk,” he added.

Gold prices rose 1.7 percent to $4,783 an ounce.

The dollar fell to its lowest level in a month against a basket of currencies. The euro strengthened 0.9% to $1.1698, its highest level since early March, the pound rose 1% to $1.3428, while the U.S. currency earlier fell nearly 1% against the yen to 158.12.

In the bond market, the yield on the U.S. 10-year note fell to 4.2438%, the lowest since mid-March, while the yield on the German 10-year note fell earlier to 2.92%.