Markets Rally After Ceasefire Confirmed – Oil down 16%
US equity markets finished little changed overnight, recovering from earlier sharp losses as investors weighed the increasing likelihood of a ceasefire in the Middle East against the approaching deadline set by Donald Trump. The Dow slipped 0.18% to close at 46,584, while the S&P 500 edged 0.08% higher to 6,616 and the Nasdaq gained 0.10% to finish at 22,017, reflecting a cautious tone throughout the session. In fixed income, US Treasury yields moved notably lower as geopolitical tensions appeared to ease, with the 2-year yield falling 6.0 basis points to 3.788% and the 10-year yield declining 3.8 basis points to 4.293%. The US dollar also softened, dropping 0.31% to 99.67, as reports emerged that Pakistan had requested a two-week extension to the US deadline and urged Iran to reopen the Strait of Hormuz. Commodity markets reflected the shifting sentiment. Oil prices reversed sharply from earlier highs, with Brent crude falling 3.70% to $105.77 and WTI declining 1.25% to $111.00. Gold, however, moved higher by 1.22% to $4,706.51, as the dollar fell.
Developments accelerated early in the Asian session, with confirmation of a two-week ceasefire in the Gulf and Iran agreeing to reopen the Strait of Hormuz. The reaction across markets was swift and decisive—oil prices plunged more than 16%, the US dollar fell around 1%, and global equity markets rallied strongly as risk appetite returned.
Relief Rallies to Dominate Markets Today
The market was on tenterhooks going into today’s trading sessions, with huge uncertainty surrounding which way the coin would land in the Middle East. The subsequent announcement of a ceasefire has led to huge relief rallies in the market that constitute not only a positive move from the ceasefire, but the effect has almost doubled the impact as there has not been the promised escalation which Trump had threatened. There is no doubt that there will be further twists in the Gulf in the coming days and weeks, but many in the market are now hoping that this is not only a ceasefire but an end to hostilities altogether. If we continue to get updates in line with this narrative, then expect these rallies to increase; however, any signs of further strikes would see risk-off trades come back to the forefront of investor attention and markets move accordingly.
Markets to Rally in Sessions Ahead
Looking ahead, volatility is expected to remain elevated, albeit with a clear bias toward risk-on positioning after confirmation came through of a ceasefire early in the Asian session. Attention will also turn to key macroeconomic events, with the latest policy decision from the Reserve Bank of New Zealand due out midway through the day. The bank is expected to keep rates on hold at 2.25%, but the devil will be in the detail of the statement, which could now be out of date given this morning’s ceasefire update and the later press conference. There is little of note on the calendar in the European time zone, but traders are expecting the reaction to this morning’s update in the Gulf to continue to push markets through the session. The New York session is also relatively quiet, with just the Weekly US Crude Oil Inventory (last 5.5 mio barrels) update likely to feature on the data front; however, the Federal Reserve meeting minutes toward the end of the session will influence markets and could even take some of the wind out of the sails provided by the ceasefire announcement.
