Stocks Surge Higher After Ceasefire Announced – Dow up 2.85%
Global markets rallied strongly overnight following confirmation that the US and Iran had agreed to a ceasefire in the Middle East, driving a broad-based relief move across risk assets. US equities surged, with the Dow Jones rising 2.85% to 47,909, the S&P 500 gaining 2.51% to 6,782, and the Nasdaq advancing 2.80% to 22,635. Despite the strength, some caution lingers after Iran accused the US of breaching the agreement shortly after it came into effect. In currency markets, the US dollar weakened sharply as safe-haven demand unwound, with the dollar index falling 0.82% to 99.04. US Treasury markets were less reactive overall, with yields initially moving lower before stabilising, leaving the 2-year yield marginally down at 3.785% and the 10-year yield little changed at 4.291%. As expected, commodities saw significant volatility, particularly in energy markets where the geopolitical risk premium was rapidly priced out. Brent crude dropped 11.81% to $96.37 per barrel, while WTI fell even more sharply, declining 16.41% to $94.41. Gold initially rallied on the weaker dollar before trimming gains, closing modestly higher by 0.27% at $4,719.15.
Tensions Remain Elevated in the Middle East
Traders are preparing for more volatility across financial markets today, as although the overall sentiment with regard to the ceasefire in the Middle East is positive, there are still some crucial factors that have investors remaining somewhat cautious that the path back to ‘normal’ may not be a smooth one. The fact that the Iranians have already called out the US and claimed that they have violated the terms of the ceasefire is already concerning, and the fact that the Strait of Hormuz is seeing very little flow through it will increase those worries. In addition to this, Israel is still attacking – and being attacked from – Lebanon, as they are not part of the ceasefire agreement, so hostilities are still ongoing in the region. The situation still feels finely balanced, and traders are preparing to react to updates, with signs of significant shipping moving through the Strait likely to lead to strong risk-on moves, while any signs that the ceasefire may not last are likely to lead to hard risk-off moves again.
Another Busy Day Ahead for Traders
Looking ahead, markets will remain highly sensitive to further developments out of the Middle East, with products likely to remain volatile on every update from each side. The Asian session looks set to open in a cautiously optimistic mood after a good day on Wall Street, despite some concerns about the ceasefire situation. There is little on the event calendar in the Asian session, and so sentiment will dominate moves. The London session is also relatively quiet, although focus will jump onto Swiss markets early in the day when SNB Chairman Martin Schlegel speaks in Bern. The major data drop of the day again comes in the New York session, with some big numbers due for release. The main focus will be on the Fed’s favoured inflation indicator, the Core PCE Price Index (exp +0.4% m/m), which comes out alongside Final GDP (exp +0.7% q/q), Final GDP Price Index (exp +3.8% q/q), and the Weekly Unemployment Claims (exp 210k) data. All will be closely watched and could provide a more fundamental driver for markets in between ongoing geopolitical headlines.
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