The latest 180-degree turn in the Iran war has brought about a new historic morning, and there are a few, in the financial markets, which are experiencing a day of euphoria this Tuesday. The announcement by the president of the United States, Donald Trump, that he accepted Pakistan’s proposal to facilitate the negotiations, came with Wall Street and Europe closed; The stock markets, thus, have started unleashed: the Ibex advances more than 3% an hour after opening and the Euro Stoxx gains 4%. Oil falls nearly 15% and falls below $100 per barrel, gas falls 19% in Europe and gold advances more than 2%.
The truce was the most anticipated news for investors, after six weeks of turmoil and intense volatility, since the attacks by the United States and Israel against Iran began. A contest that has extended longer than initially expected, despite Trump’s messages, and that threatened to become entrenched and keep the Strait of Hormuz, a key sea route for global energy supply, closed to traffic for months. This morning’s announcement, beyond what it is, is the first indication that hostilities may come to an end, or at least that the parties show a willingness to do so. And, for now, Iran has agreed to allow safe passage through Hormuz for two weeks, through which around 20% of the world’s oil and gas transit.
The announcement reached its limit, just two hours before it expired to intensify the attacks against Iran and “unleash hell,” according to the president. The worst scenario has been avoided and the markets celebrate it: the Ibex rises 4% to 18,155 points and the Euro Stoxx soars 4.7%. On Wall Street, S&P 500 futures gained 2.6% and Nasdaq 100 futures gained 3.3%. In Asia, the Japanese Nikkei gained more than 5.6% and the South Korean Kospi gained 7%.
However, experts are cautious about the increases and assess the possibilities that the ceasefire will translate into lasting peace. For market gains to consolidate, palpable signs will be needed that the truce is moving forward and that energy flows through the Strait of Hormuz are normalizing. Many analysts warn that there will still be episodes of volatility due to possible unexpected turns. “Does this mean that investors are going to take new risks? It doesn’t seem like it,” Martin Whetton, head of strategy at Westpac, told Reuters. “There would have to be lasting peace for things to change. People are not taking risks.”
The market reaction is even more energetic in energy prices, both oil and gas. The futures of brentthe reference crude oil in Europe, fell around 15% and stood at around $93 per barrel, while American WTI futures fell around 16%, to $94.6 per barrel. The intraday drop reached, at times, 19%, the largest since 1991. The drop in gas is also drastic: the European reference, the TTF contract negotiated in the Netherlands, fell 17% to 44 euros per megawatt hour (MWh).
Beyond the immediate relief, investors remain attentive to the development of events, to see if the ceasefire leads to a definitive solution. Israel has accepted the truce, although it warns that it does not affect Lebanon. For now, “it is a good result considering the alternatives, as it shows the desire to achieve something,” says Matthew Haupt, a fund manager at Wilson Asset Management in Sydney, speaking to Bloomberg. “It is also a sign that we have avoided the worst possible scenario.”
Regarding currencies, the dollar is weakening against the euro and other currencies. The American currency has acted as a safe haven during this conflict, given that the American economy is a net exporter of hydrocarbons. However, the market is still far from returning to square one: so far this year, the brent has revalued close to 55% and West Texas, 67%.
The turn of the markets has been equally radical in debt, where interest rates are falling vertically: the Spanish 10-year bond cuts its yield by 22 basis points (0.22 percentage points) in just one hour of trading, the German one by 17 and the US one by 10. The drop in oil implies less prospects for inflation which means, on the one hand, a lower probability of interest rates falling and, on the other, that investors do not demand more yield to compensate. the highest price forecasts.
Gold also rises, 2%, reaching $4,800 per ounce. The precious metal – an asset considered a safe haven – usually benefits in a scenario of lower interest rates. Silver advances 4.5%, exceeding $76 per ounce.
According to Bloomberg data, overnight rate futures indicate a 60% chance of a money price cut by the Federal Reserve by the end of the year, compared to almost no chance at the start of this week. Before the United States and Israel attacked Iran in late February, markets were forecasting more than two rate cuts this year. “The market could readjust towards a slightly higher probability of Fed cuts than is currently reflected,” said Ken Crompton, head of interest rates strategy at National Australia Bank.
Increases of up to 10%
Among the Spanish stocks that gained the most in the session, the airline group IAG, owner of Iberia and British Airways, gained 8.7%, while Arcelor Mittal, the steel mill highly dependent on raw material prices, rose 10% (7.2% for Acerinox). The euphoria also reaches the banking sector, since Santander adds 7.5%. Indra, Amadeus and Fluidra also benefit from the greater appetite for risk. On the opposite side, the energetic ones. The oil company Repsol is the hardest hit with a 9% drop, while Enagás, Naturgy, Endesa, Solaria and Iberdrola are down between 1% and 2%.
Still, the key test for investors will be whether oil and gas flows through the Strait of Hormuz remain uninterrupted. Safe passage through the sea route will be possible through coordination with the Iranian armed forces and with consideration of technical limitations, Iranian Foreign Minister Abbas Araghchi stated in a post on the social network “Let’s keep in mind that we can still see greater volatility with any new news,” adds Nick Twidale, chief market analyst at AT GlobalMarkets. “These are important movements in the markets that can translate into strong oscillations.”
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