Oil prices plunged Wednesday while stocks soared after the United States and Iran agreed to a two-week ceasefire that will see Tehran temporarily reopen the vital Strait of Hormuz.
With Donald Trump’s deadline approaching for the Islamic Republic to reopen the waterway or face obliteration, he announced a halt to attacks for two weeks and said he had received a “workable” 10-point proposal.
Iran later said it had agreed to safe passage in the Strait, through which a fifth of global oil and gas passes.
The news pushed down crude prices, with West Texas Intermediate losing almost 20 per cent and Brent as much as 16 per cent as investors heaved a huge sigh of relief after more than five weeks of war that has hammered supplies.
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.
The euphoria sent global equities rocketing on hopes that the crisis that has shocked the global economy for more than a month would come to an end.
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%.
Seoul jumped 6.9 per cent and Tokyo 5.4 per cent, while Taipei added more than four percent and Mumbai 3.8 per cent.
Hong Kong advanced nearly three percent, while Sydney, Shanghai, Bangkok, Manila, Jakarta, Singapore, and Wellington were also sharply higher.
London rallied out of the blocks with Paris and Frankfurt, while US futures soared.
Middle East stocks also rallied, with Dubai jumping 8.5 percent, the biggest intraday increase since December 2014, according to Bloomberg.
Stocks in Abu Dhabi climbed more than three percent, which was the largest gain since March of the same year.
Trump had threatened Tuesday that if Hormuz was not reopened, “a whole civilization will die tonight, never to be brought back again”. That came after he vowed to bomb bridges, power plants, and other civilian infrastructure in Iran.
Iran warned it would deprive the United States and its allies of oil and gas “for years” if he did so.
However, as the world counted down to the cutoff, the US president took to social media to say: “Subject to the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz, I agree to suspend the bombing and attack of Iran for a period of two weeks.”
He added that it “will be a double sided CEASEFIRE!” and that “we have already met and exceeded all Military objectives, and are very far along with a definitive Agreement concerning Longterm PEACE with Iran, and PEACE in the Middle East”.
He later said on Truth Social that the United States would help with the traffic buildup in the Strait of Hormuz, adding, “There will be lots of positive action! Big money will be made. Iran can start the reconstruction process.”
Relief For Asia
Prime Minister Shehbaz Sharif of Pakistan, who has played a key mediator role, said the ceasefire would start immediately.
He said the United States “along with their allies” had agreed to a ceasefire everywhere, including Lebanon, implying that Israel had agreed to halt its invasion of its northern neighbour.
However, Tel Aviv said it supported the suspension of the bombing of Iran, but maintained the ceasefire did not include Lebanon.
Iran claimed victory, with the Iranian Supreme National Security Council saying: “The enemy has suffered an undeniable, historic and crushing defeat in its cowardly, illegal and criminal war against the Iranian nation.”
The ceasefire also led to a sharp drop in the dollar, which had become the safe-haven while the war raged, with the yen, euro, and pound all strengthening.
Gold rallied, having been hit by concerns of a sharp rise in inflation that will keep interest rates elevated, while bitcoin rose.
“Trump and the Iranians have confirmed that various proposals have been exchanged which will now form the basis of negotiations towards a longer-lasting peace agreement, which will be ‘finalised and consummated’ over the coming fortnight,” said Michael Brown at Pepperstone.
“This latter aspect helps to explain the significant risk-on market reaction that we’ve seen,” he added.
“Not only are participants pricing out the risk of near-term escalation, but they must also price in the increased likelihood that we do now see a durable, and long-lasting agreement formed to bring hostilities to an end.”
Stephen Innes of SPI Asset Management said the deal “matters enormously for Asia”, where several governments have been forced to introduce measures to combat rising energy costs.
“Lower oil prices remove the chokehold that has weighed on regional risk sentiment, especially in markets that feel imported energy shocks first and hardest,” he said.
“With crude backing off, the pressure on inflation expectations and front-end yields eases at the margin, and that is enough to let capital rotate back toward risk, at least for now.”
READ ALSO: Trump Agrees To Suspend Bombing Of Iran For Two Weeks
Key Figures At Around 0705 GMT
West Texas Intermediate: DOWN 16.2 per cent at $94.66 a barrel
Brent North Sea Crude: DOWN 14.9 per cent at $93.00 a barrel
Tokyo – Nikkei 225: UP 5.4 per cent at 56,308.42 (close)
Hong Kong – Hang Seng Index: UP 2.9 per cent at 25,852.03
Shanghai – Composite: UP 2.7 per cent at 3,995.00 (close)
London – FTSE 100: UP 1.6 per cent at 10,517.69
Euro/dollar: UP at $1.1701 from $1.1585 on Tuesday
Pound/dollar: UP at $1.3431 from $1.3274
Dollar/yen: DOWN at 158.15 yen from 159.70 yen
Euro/pound: DOWN at 87.10 pence from 87.28 pence
New York – Dow: DOWN 0.2 per cent at 46,584.46 (close)
Channels Television/AFP
