Markets are in rally mode after the Iran ceasefire.
Investors cheered President Donald Trump’s announcement of a two-week ceasefire with Iran 90 minutes before his imposed 8 p.m. deadline. Earlier in the day, he wrote that “a whole civilization will die” if Iran didn’t make a deal.
Traders who have been fretting about an extended conflict in the Middle East are breathing a sigh of relief. The news has started to unwind much of the damage markets have taken over the past month as traders have priced in the knock-on effects of higher oil prices, like hotter inflation and higher interest rates.
Here are four moves that capture the market chaos:
Oil prices — a key point of anxiety in markets since the start of the war — collapsed as traders eyed a soon-to-come resolution and the reopening of the Strait of Hormuz.
The Strait, a key passage for oil and other goods, has been choked off since the start of the conflict. Iran said it would allow traffic to pass through safely during the 2-week ceasefire, during which negotiations between the US and Iran will take place.
Brent crude, the international benchmark, plummeted 13% to $93 a barrel. May contracts for West Texas Intermediate crude dropped 18%, trading around $91 a barrel Wednesday morning.
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Equities soared as traders began to discount one of their biggest fears — that hotter inflation stemming from oil prices would hit economic growth, raising the risk of a recession.
All three benchmark indexes soared early Wednesday, with the Dow advancing more than 1,300 points at the open. The S&P 500 jumped 2%, while the tech-heavy Nasdaq 100 popped more than 3% as the economic outlook brightened.
The US Dollar Index, which measures the greenback against a basket of other major currencies, fell 1% to around 98, reflecting investors expectations for interest rates to resume falling and as the safe-haven trade cooled.
The US dollar had been appreciating in recent weeks as investors eyed the potential for higher inflation, which would prompt the Fed to raise interest rates. The decline reflects how anxieties about inflation are being soothed by the ceasefire.
The odds that the Fed will cut rates at least one more time before the end of the year jumped overnight from 14% to 41%, according to the CME FedWatch tool.
Treasury yields, another reflection of interest rate expectations, also slid.
The benchmark 10-year US Treasury yield fell to 4.25% on Wednesday, declining nine basis points. The yield is down 19 basis points from its late-March high. The ceasefire has caused traders to recalibrate expectations for inflation caused by the war.
Yields spiked during the six weeks of conflict on the expectation that interest rates would stay high to offset rising prices.
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