The FTSE 100 surged on Wednesday after the US and Iran agreed a two-week ceasefire and the reopening of the Strait of Hormuz.
The deal, struck just an hour before a deadline set by Trump that could have seen the US attack Iranian civilian infrastructure, sparked a global risk-on rally that sent stocks higher and bond yields sharply lower.
UK 10-year gilt fell to 4.65% after closing yesterday’s session around 4.9%. The FTSE 100 jumped on the news, trading over 2% higher at 10,620.
“Investors’ wish for a ceasefire has been granted, triggering a rally across financial markets and pulling down the oil price,” said Dan Coatsworth, head of markets at AJ Bell.
There are still many things that could go wrong with the ceasefire agreement, but after more than a month of trading headline to headline, investors will be pleased to see a two-week break in the fighting that may prove to be permanent.
Oil prices sank overnight as traders reacted to the reopening of the Strait of Hormuz and hopes of free-flowing oil from the Middle East.
Brent Crude oil prices tumbled around 14% to change hands well below $100 at $94. WTI was down 16%.
“The 14% decline in the Brent Crude oil price to $94 a barrel puts energy prices in the right direction as far as businesses and consumers are concerned,” Dan Coatsworth said.
“However, it’s impossible to assume they will quickly return to the sub-$70 a barrel level seen before the Iran crisis began in March. There has already been considerable disruption to the flow of supplies and that might remain the case for some time, even if the Strait of Hormuz becomes fully functional again.”
Despite uncertainty about the medium-term trajectory of oil prices, the UK’s interest rate-sensitive sectors were among the best performers on Wednesday, amid hopes that inflation could be managed without a series of rate hikes.
Housebuilders, heavily hit by concerns about possible Bank of England interest rate hikes to fight off inflation caused by the Middle East war, were among the best performers on the day.
Persimmon was 9% higher while Barratt Redrow added 8%. Both Housebuilders are still significantly below 52-week highs.
Other consumer-facing stocks enjoyed a reset in inflation expectations. JD Sports jumped 8%, and Burberry rose 6%. Gambling firm Entain also joined the rally, adding 6%.
Miners surged on the ceasefire agreement. Antofagasta was the top riser at the time of writing, rocketing 12% higher. Fresnillo rallied 10.7% and Anglo American surged 10.3%.
Oil prices falling 15% suddenly made the oil majors BP and Shell’s recent rally look overdone, and the pair were rooted to the bottom of the FTSE 100 leaderboard. BP and Shell were down around 6% at the time of writing.