Stocks Surge, Oil Dives Below $100 as Iran Ceasefire Sparks Relief Rally

Source: Reuters | Editor: Anna Suci Perwitasari

GLOBAL MARKET - LONDON. Oil futures sank below $100 a barrel while equity and bond prices rallied sharply on Wednesday after the United States and Iran agreed on a two-week ceasefire, prompting hopes for a resumption of oil and gas flows through the Strait of Hormuz.

U.S. President Donald Trump announced the ceasefire, which was brokered by Pakistan, less than two hours before his Tuesday deadline for Iran to reopen the strait, through which about a fifth of global oil and liquefied natural gas is shipped, or face devastating attacks on its civilian infrastructure.

But while Trump claimed victory, analysts noted that Iran's continued control over the strait leaves it with powerful leverage over global energy markets and Gulf rivals.

Iran said it would provide safe passage through the waterway if attacks against it stopped.

But on Wednesday afternoon, the country's parliamentary speaker, Mohammad Baqer Qalibaf, said three key clauses of a 10-point proposal were violated before negotiations were set to start on Friday, and that in such a situation, a bilateral ceasefire or negotiations were unreasonable.

S&P 500 NOTCHES HIGHEST CLOSE IN A MONTH

Still, investors, who had moved to the sidelines on Tuesday ahead of Trump's deadline, took a bullish stance throughout Wednesday's session, pushing the benchmark S&P 500 to its highest closing level in a month.

Treasury yields pared losses but were still down on the day as investors bet that sliding oil prices could keep inflation in check and increase the probability of Federal Reserve rate cuts.

"What we're seeing across equities, bonds, gold and the U.S. dollar is a classic risk-on scenario," said David Krakauer, vice president of portfolio management at Mercer Advisors in San Diego.

"Markets are looking for breathing room and are welcoming the potential ceasefire and opening of the Strait of Hormuz. That's really being reflected across all the asset classes."

In U.S. equities, the Dow Jones Industrial Average rose 1,325.46 points, or 2.85%, to 47,909.92, the S&P 500 gained 165.96 points, or 2.51%, to 6,782.81 and the Nasdaq Composite added 617.15 points, or 2.80%, to 22,635.00.

MSCI's gauge of stocks across the globe rose 32.33 points, or 3.24%, to 1,030.42. Earlier, the pan-European STOXX 600 index closed up 3.88%.

"Today's market rally is a classic geopolitical relief trade because oil is collapsing and some of the tail risks are coming off the table for now," said Gene Goldman, chief investment officer at Cetera Investment Management.

"There's a lot of short covering taking place, a lot of systematic buying, turning what should be a modest equity bounce into a strong rally."

He noted, however, that "there's still uncertainty about the ceasefire, which is only two weeks, and there's contradictions around what the Trump administration has said and what the Iranians have said about the Strait of Hormuz."

In energy markets, U.S. crude settled down 16.4%, or $18.54, at $94.41 a barrel, while Brent settled at $94.75 per barrel, down 13.3%, or $14.52, although both were still well above pre-war levels.

In Treasuries, the yield on benchmark U.S. 10-year notes fell 4.4 basis points to 4.299%, from 4.343% late on Tuesday, while the 30-year bond yield fell 3.1 basis points to 4.8897%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 4.1 basis points to 3.792%.

Earlier, euro zone government bond yields also dropped sharply, as the ceasefire prompted traders to dramatically scale back their bets on future rate hikes by the European Central Bank.

In currencies, the euro rose 0.58% against the U.S. dollar to $1.1661. Against the Japanese yen, the dollar weakened 0.65% to 158.59. In precious metals, gold pared gains after touching a three-week high following the U.S.-Iran agreement.

Spot gold was last up 0.44% to $4,722.97 an ounce while spot silver rose 1.8% to $74.24 an ounce.