week ceasefire sends oil prices tumbling

Asian shares rise as US-Iran two-week ceasefire sends oil prices tumbling

MSCI's Asian stock benchmark increased 2.6% and equity index futures for Wall Street gauges were up over 2%. European stock futures rose 5%.

By CNBCTV18.com

Asian shares gained after US and Iran agreed to a two week ceasefire, resulting in some respite for markets from the turbulence driven by the conflict in West Asia.

MSCI's Asian stock benchmark increased 2.6% and equity index futures for Wall Street gauges were up over 2%. European stock futures rose 5%.

West Texas Intermediate tumbled 19% post US President Donald Trump agreeing to suspending bombing on Iran in a move that would help resume oil flows via the Strait of Hormuz. Iran said safe passage via the waterway would be possible during the two week period. Global benchmark Brent declined as much as 16%.

A gauge of the dollar, which emerged as the haven of choice during the conflict, fell 0.6%, while Treasuries rallied as traders added to bets on Federal Reserve interest-rate cuts.

The ceasefire proposal is reviving risk sentiment after turmoil that drove stocks lower and pushed several gauges into correction territory since the war started six weeks ago. The announcements — just hours before a Trump threat to escalating bombing on Iran — eases fears of supply disruptions in oil markets, tempering inflation concerns and reducing pressure on central banks to keep policy tighter for longer.

Trump announced the agreement Tuesday on social media hours after Pakistan, a mediator in talks, implored the US leader to back off his deadline to unleash massive devastation on Iran if it did not meet his demands. The deal buys time for the two sides to reach a longer agreement to end the war, which has killed thousands of people and sparked a global energy crisis.

Trump’s decision represents a dramatic climb-down from a bellicose social media post earlier Tuesday, in which he warned “a whole civilization will die tonight, never to be brought back again” if Iran didn’t give in.

Safe passage through the Strait of Hormuz will be possible via coordination with Iran’s armed forces and with “due consideration of technical limitations,” Iranian Foreign Minister Abbas Araghchi said in a post on X.

In other corners of the market, gold jumped as much as 3.1% to above $4,850 an ounce as bullion — a non yielding asset — typically benefits in a lower interest rates scenario.

The Treasury yield curve bull-steepened as a slump in oil prices fuelled bets that slower inflation will pave the way for the Fed to cut rates. Policy sensitive two-year yields dropped seven basis points to 3.72%, while the 10-year counterparts fell four basis points to 4.25%.

Overnight-indexed swaps signaled a 60% likelihood of a Fed rate cut by the year-end, compared with almost no chance seen at the start of this week. They had priced in more than two rate reductions before the US and Israel attacked Iran in late February.

After Trump’s initial post, it was unclear if a path toward deescalation would be found. US forces in the early hours of Tuesday hit military targets on Iran’s major oil export hub of Kharg Island.

The complete terms of a possible pact weren’t disclosed. Trump only said the US had received a 10-point proposal from Iran, describing it as “a workable basis on which to negotiate.”

With inputs from Bloomberg

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