President Trump announced he was cancelling additional military strikes on Iran and claimed a peace agreement could be close, triggering sharp market movements. Oil prices fell and stock indices rallied on the news, though Iran's government disputed the president's characterization of the negotiations.
Oil experienced dramatic declines following the announcement. Brent crude dropped 16% initially, while US crude fell 17.6%. By late Wednesday afternoon London time, Brent crude was down 13.5% to $94.36 a barrel, and US crude fell 15.5% to $95.36, marking its biggest single-day drop since the Covid-19 lockdowns six years ago. The price declines reflected investor relief over reduced military tensions in the Persian Gulf.
Stock markets worldwide responded positively to the ceasefire news. Wall Street recorded its biggest single-day rally in a year. The S&P 500 rallied 2.5% to 6,782.81, while the Dow Jones industrial average gained more than 1,300 points, or 2.9%, finishing at 47,909.92. The tech-focused Nasdaq Composite advanced 2.8% to 22,634.99. Asian and European markets also surged, with Japan's Nikkei 225 gaining over 5%, South Korea's Kospi soaring 7.5%, and the pan-European Stoxx 600 climbing 3.7%.
Travel and leisure stocks performed particularly well. Air France gained 13%, Lufthansa jumped 8%, British Airways owner IAG rose 8%, and holiday group Tui gained nearly 10%. However, energy company shares tumbled, with BP down 6% and Shell losing 4.7%.
The deal involved a two-week conditional ceasefire. According to Iran's foreign minister Abbas Araghchi, passage through the Strait of Hormuz would be allowed for two weeks under Iran's military management. Peace negotiations between the US and Iran were scheduled to begin in Islamabad on Friday. However, Iran's foreign ministry disputed Trump's claims, saying no final decision on an agreement had been reached.
Treasury yields eased following the ceasefire announcement. The yield on the 10-year US treasury fell to 4.24% from 4.30%, while the UK 10-year government bond yield dropped to 4.7% from 4.9%. Gold prices rose over 2% to $4,812 an ounce, and bitcoin advanced 2.9% to $71,327.
Despite the optimistic market reaction, analysts warned of fragility ahead. Kathleen Brooks from trading platform XTB noted that oil prices could surge back above $110 per barrel for Brent crude if bombing restarted. Jim Reid from Deutsche Bank cautioned that investors should monitor whether the ceasefire holds and whether talks could lead to sustained de-escalation.
Reports indicated that Israel launched strikes on Lebanon and that Iran halted oil tanker passage following alleged ceasefire breaches, which later nudged oil prices higher from their lows.