Global stock markets took a breather on Wednesday while oil dipped below $100 a barrel as a two-week Middle East cease-fire was agreed and all eyes turned to weighing the potential for a resumption of oil and gas flows through the Strait of Hormuz.
The news capped weeks of market volatility and geopolitical upheaval after U.S. and Israeli strikes on Iran at the end of February pushed tensions to the brink, with Tehran effectively choking off the strategic waterway that typically carries about 20% of the world’s energy supplies.
U.S. President Donald Trump on Tuesday agreed to the cease-fire less than two hours before his deadline for Iran to reopen the strait or face devastating attacks on its civilian infrastructure.
Market reaction was swift and dramatic, with U.S. crude futures down around 15% to $96.31 a barrel, while Brent futures also slid 13% to $94.71 per barrel.
S&P 500 futures rose 2.5%, while European futures leapt more than 5%. U.S. Treasuries rallied while futures for German bunds and French OATs surged.
The U.S. dollar fell broadly, having been the haven of choice during the tumult.
In Asia, Japan's Nikkei jumped about 5% while South Korea's KOSPI vaulted 6%, triggering a brief halt in trading. That left the MSCI's broadest index of Asia-Pacific shares outside Japan up 4%.
"When you factor in that the two-week delay is longer than the original 10-day window set for the initial attack, it seems plausible that the worst of the conflict may now be behind us," said Matt Simpson, a senior market analyst at StoneX.
"Markets can worry about the complexities later. For now, they've been given the green light to rally."
The six-week conflict had sent oil prices soaring, reignited inflation fears and thrown the global rates outlook into disarray, forcing governments and companies to scramble for cover against a sudden energy shock.
Trump's social media announcement on the cease-fire marked an abrupt reversal from hours earlier, when he issued an extraordinary warning that "a whole civilization will die tonight" unless his demands were met.
Beyond the immediate relief, investors remain keen to see whether the cease-fire leads to a broader resolution before placing major bets.
"Does it mean people are going to take new risks? No, it doesn't," said Martin Whetton, head of financial markets strategy at Westpac. "It would have to actually be a lasting peace (to change things). People aren't actually taking risk."
Gold prices climbed 2.5% to $4,820 per ounce.
In currencies, the risk-sensitive Australian dollar rose 1.4% to $0.7074, and the euro gained 0.8% to $1.1687.
The dollar index eased to 98.835, hovering near a one-month low.
Meanwhile, New Zealand's central bank kept its policy rate unchanged, as expected, buying time to assess the fallout from the war but signalling it would act decisively if inflation heats up.
The comments underscore the challenge facing global central banks as the energy price and supply chain shocks from the war take time to normalize, leaving price pressures intact.
Some analysts are also sceptical that the cease-fire will translate into lasting peace, warning of likely twists and turns ahead.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the conflict’s root causes remain unresolved, keeping the risk of re-escalation firmly intact.
"We maintain our view that the war will run into June. The implication is dollar losses may prove short-lived."
U.S. Treasuries surged after the announcement, with traders putting the prospect of rate cuts from the Federal Reserve later in the year back on the table, although doubts about whether oil prices will go back to pre-war levels kept enthusiasm in check.
The yield on the benchmark U.S. 10-year Treasury note dropped 10 basis points to 4.241%, the lowest since mid-March. The yield on monetary policy-sensitive U.S. two-year Treasury notes sank 10.7 bps to 3.725%.
