Relief rally spreads across markets
News of a two-week ceasefire between the US and Iran has sparked a broad relief rally across global financial markets. Oil prices are down by as much as 12%, while equity markets are rebounding on hopes that the military escalation threatened by US President Trump has, for now, been avoided.
Asian markets have responded strongly, with the Nikkei up 4.8%. European equities are also expected to open sharply higher, with the DAX indicated 5.5% higher and Wall Street futures also pointing to a firmer start later in the day.
Ceasefire does not remove regional risk
Even so, the situation in the Middle East remains fragile and the relief may not last. Israel has already said the ceasefire does not apply to its operations in Lebanon, and there is still no lasting peace agreement in place, only a temporary halt in hostilities.
Further difficult negotiations and additional military conflict cannot be ruled out. The US may also use this pause to reposition after a period of political and military strain, which means markets may still face renewed tension if the ceasefire breaks down.
Lower oil prices may support European equities
For the global economy, the most important near-term development is the reopening of the Strait of Hormuz and the return of smoother shipping flows. Supply-chain disruption had already driven sharp price increases and created production difficulties across several industries.
