The FTSE 100 index soared on Wednesday morning, climbing around 3% in early trading after Washington and Tehran agreed to a two-week ceasefire – an outcome markets had been bracing for over several days of intense diplomatic pressure and military escalation.
The relief was immediate and broad-based. Travel stocks led the charge, with Wizz Air and Vistry Group both jumping over 13%, easyJet up more than 10%, and cruise operator Carnival gaining close to the same. Airlines and housebuilders had been among the hardest hit in recent weeks as oil prices climbed and risk appetite drained away, so the reversal was swift once the ceasefire news broke.
The flip side was a sharp drop in energy shares. BP fell more than 8% and Shell nearly 7.5%, as Brent crude tumbled around 13% to roughly $95 a barrel – its steepest single-day fall in almost a year. The ceasefire is conditional on Iran allowing safe passage through the Strait of Hormuz, the chokepoint that handles about a fifth of global oil shipments. That commitment immediately deflated the supply-risk premium that had been baked into crude prices for weeks.
Banks also moved higher on improved growth expectations. Barclays climbed 8% and Lloyds added 7%, as traders scaled back bets on aggressive Bank of England rate increases. Markets are now pricing in just one hike this year, compared with two or three previously.
The mood, though, is cautious underneath the euphoria. Analysts have been quick to flag that a two-week truce is a long way from a lasting settlement. Capital.com’s Daniela Hathorn described the deal as providing “an off-ramp” for both sides while warning that the situation “remains fragile” and that talks could still break down. The economic damage from weeks of elevated oil prices – higher shipping costs, strained supply chains, inflationary pressure – will take time to unwind even if calm holds.
President Trump separately posted that he had received a 10-point proposal from Tehran which he called a workable basis for further negotiations. Whether that proves to be the foundation for something more durable, or simply the latest in a string of deadlines and reversals, will determine whether today’s rally has legs.
On the domestic data front, Halifax’s March house price index showed a 0.5% monthly drop, a small but telling sign that the UK consumer is still under pressure regardless of how the geopolitics resolve.