As Oil Drops, Stocks Soar in a Global Relief Rally – Europe Market Wrap
Following the US and Iran’s temporary ceasefire agreement, a surge of confidence rushed across global markets, raising equities and bonds and causing the largest reduction in oil prices in years.
S&P 500 futures rose 2.5%, as European equities rallied the most in a year. Brent dropped as much as 16% before trading at approximately $95 per barrel. Global bonds rallied, with 10-year UK rates falling by 22 bps. The Dollar fell to a four-week low. Gold rose.
As part of the two-week truce, Iran said it will allow ships to pass through the Strait of Hormuz, relieving the world economy’s reliance on petroleum supplies, which had threatened to cripple it and increase inflation. While many investors emphasised that there is still a significant difference between Iran’s and the US’ negotiation demands, the general consensus was that markets had fallen so severely in recent weeks that any de-escalation path would be enough to spark a rebound.
Traders now believe the Fed will decrease interest rates this year. Swaps now indicate a 60% possibility of a rate drop before the end of the year, up from essentially nil chance at the start of the week. They had priced in more than two reductions prior to the outbreak of war.
The most dramatic changes occurred in the oil markets. European natural gas futures fell the most in more than two years, by up to 20%. Prices for refined fuels such as diesel and jet fuel, which had been the most serious threats to global inflation, also fell.
