The geopolitical fears that have gripped the markets for almost two weeks are fading, after Donald Trump declared that Israel and Iran have negotiated a ceasefire.
The oil price has slumped back to its levels before the Israel-Iran conflict began, easing fears of a stagflationary slump hurting the world economy.
Brent crude tumbled on Monday, as hopes rose for a lasting pause in the Middle East clashes. It’s dropped by another 3.1% this morning to $69.25 a barrel.
That’s Brent’s lowest level since 11 June, the day before Israel launched a series of strikes against Iran’s nuclear and military sites.
Monday’s selloff was a surprise – oil slumped after Iran launched a retaliatory missile strike on a US airbase which was well-telegraphed in advance, and unsuccessful.
That eased fears that Tehran might attempt to close the strait of Hormuz, disrupting the flow of a third of the world’s oil.
The oil selloff continued on Tuesday morning, after Trump declared that a ceasefire between Israel and Iran was in force.
Just after 6am UK time, he posted: “THE CEASEFIRE IS NOW IN EFFECT. PLEASE DO NOT VIOLATE IT! DONALD J TRUMP, PRESIDENT OF THE UNITED STATES!”
Stock markets across the Asia-Pacific region have been swept higher by hopes of a lasting ceasefire in the Middle East.
China’s main markets are up between 1.1% and 1.6%, with Hong Kong’s Hang Seng gaining 1.8%.In South Korea, the KOSPI index has jumped over 3%, while Japan’s Nikkei 225 is up 1.3%.
The '“tentative ceasefire” between Iran and Israel is supporting a relief rally, reports Kyle Rodda, senior financial market analyst at capital.com, who says: "The moves in the markets have been considerable, especially as market participants priced-out the war premium that had been slowly discounted over the course of the past fortnight and had briefly increased at the Asian open yesterday.
"Oil prices are down almost 9% on that fact alone, taking pressure off yields and helping stock valuations rebound, with Wall Street surging, led by longer-duration stocks in the tech space. Ultimately, the drop in implied volatility also boosted stocks prices, as investors looked beyond the conflict between Iran and Israel.
"There is always the risk of complacency and that these moves are premature. But, once again, as long as the aforementioned parameters remain unmet, the moves are likely to stick.
The US dollar has weakened against a basket of currencies this morning.
This has pushed the pound up by half a cent, to $1.3575, and the euro by a third of a cent to $1.161.
The US dollar’s status as a safe-haven currency has been questioned recently, due to fears over America’s debt pile and trade war fears. These moves, though, suggest it has benefitted from safe-haven inflows, which are now unwinding.
The agenda
• 8am BST: UK grocery inflation report from Kantar
• 11am BST: CBI industrial trends report on UK factory sector
• 2.30pm BST: Treasury committee hearing into fair pricing
• 3pm BST: Bank of England governor Andrew Bailey testifies to the Lords Economic Affairs Committee
• 3pm BST: Federal Reserve chair Jerome Powell testifies to Congress
We'll be tracking all the main events throughout the day … |
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