Well, that was fast. Just a few weeks ago, markets were bracing for a wider Middle East conflict, and now we’re popping champagne over a ceasefire between Israel and Iran brokered by President Trump, who appears to be back in the business of global diplomacy, one Truth Social post at a time.
European equities surged out of the gate on Tuesday morning, clinging to the hope that the worst of the geopolitical drama is behind us. The FTSE 100 ticked higher, up 0.5%. Travel stocks like easyJet and British Airways rallied, while oil majors like Shell and BP, along with gold miners and defence stocks, were in the red, all classic “fear trade” plays that suddenly look less necessary.
The reason this matters, and why we should talk about it, isn’t just because it’s good news for airline shares or bad news for oil bulls. It’s about the fragility of sentiment. This bounce is not grounded in economic strength or earnings revisions, it’s relief, plain and simple. Markets were positioned for escalation, and now they’re scrambling to unwind those trades.
Oil prices nosedived, Brent crude plummeted 10% overnight to under $69. Meanwhile, gold softened as the safe-haven exodus kicked in, dragging miners with it. Defence names like BAE Systems dipped too, perhaps on the logic that peace isn’t great for weapons orders. Imagine that.
But while some may see this ceasefire as a green light to buy risk assets, let’s not forget the bigger picture. Iran may be backing off, for now, but tensions in the region haven’t magically disappeared. Markets have been repeatedly wrong about how long this kind of truce can last. And let’s not pretend the economic outlook in the West is suddenly rosy. Inflation, rate uncertainty, and slowing growth haven’t gone anywhere.
And speaking of central banks, the other elephant in the room, Trump used the opportunity to reignite his favourite feud with Jerome Powell, hammering the Fed chair on Truth Social for not cutting interest rates fast enough. But this time, Powell’s own colleagues seem to be joining the chorus. Rate cuts as soon as July? Maybe. But if they come, it won’t be because everything’s going well, it’ll be because the underlying economy isn’t strong enough to withstand current rates.
In the UK, traders will also have an eye on the Bank of England, with Governor Andrew Bailey speaking later today. Don’t expect fireworks, but any hint of dovishness could add fuel to this risk-on mood, even if it’s built on shaky ground.
So, enjoy the rally, but keep your boots on. Relief rallies are like sugar highs, sweet while they last, but usually followed by a crash.
In my view, this isn’t peace, it’s a pause. And markets are treating it like a parade.