The FTSE 100 spiked higher on Tuesday after Iran and Israel announced a ceasefire following a twelve-day conflict.
Oil prices dropped sharply on Tuesday and are now trading back near levels seen before Israel launched strikes on Iranian nuclear facilities in early June.
The ceasefire was announced after Iran launched a dramatic retaliatory strike on a US airbase in Qatar, which didn’t cause any casualties.
Iran’s attack on Qatar meant Iran didn’t lose face while avoiding wider escalation. Donald Trump even thanked Iran in a social post after Iran warned the US of the impending strike.
With the worst of the conflict behind us, markets breathed a sigh of relief and London’s leading index spiked 0.5% higher in early trade.
“Risk assets are back on the menu after President Trump announced a ceasefire has been brokered between Israel and Iran. The details may still be a little up in the air, but global stock markets are pushing higher as a result,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
Cracks were appearing in the ceasefire on Tuesday with reports of Iran breaking the agreement and Israel promising to strike back. But markets were largely unfazed and remained happy with a broader step down in tensions.
Markets tend to focus on one big issue at a time, and now that Middle East tensions are subsiding, attention will likely shift back to growth and the ongoing battle with inflation.
However, for now, at least, there was a sense of optimism in the market, and 83 of the FTSE 100’s constituents were trading higher at the time of writing.
There were no surprises in the top risers and fallers on Tuesday.
The falling oil price weighed heavily on BP and Shell, with the two acting to offset gains elsewhere. BP was the FTSE 100’s top faller with a decline of 5%. Shell lost 3%.
Lower oil prices and the prospect of a reduction in disruption to airspaces in the Middle East were welcomed by investors in airlines EasyJet and IAG. Both shares were 6% higher at the time of writing.
Hotels group IHG shares the positive sentiments and rose more than 3%.
“Defensive stocks, oil producers and precious metals miners were all under pressure in early trading. Gold slipped back as its safe-haven attributes were less in demand. This rather clipped the wings of the FTSE 100 given its relatively heavy weightings in these areas and saw the index underperform its European counterparts,” said AJ Bell investment director Russ Mould.