- Iran declares open passage to commercial passage for remainder of ceasefire
- Oil prices fall 12%
- S&P 500 tops 7,100
- Travel stocks rally
- Treasury yields dips and gold rises
Derren Nathan (pictured above), head of equity research, Hargreaves Lansdown:
“President Trump’s social media post celebrating the re-opening of the Strait of Hormuz has been confirmed by Iran’s foreign minister Seyed Abbas Aragchi. However, risks remain that things could flare up again. The US intends to maintain its blockade on Iranian ports until a final deal’s been agreed. And Iran’s pledge only extends to the end of the current ceasefire, which expires on 22 April.
However, markets have responded enthusiastically to this latest step change in co-operation, which has sent the price of Brent crude oil down by 12% to around $87, its lowest level in 6 weeks. That’s also driven some steep falls in oil stocks – which has kept the overall rally in the FTSE index limited to under 1% given the relatively high oil sector weight.
But one man’s loss is another man’s gain. Rolls Royce and British Airways parent IAG rallied strongly on the prospect of lower prices for Aviation fuel. Similarly cruising giant Carnival’s stock has leapt nearly 9%.Still, until a deal is done the scope for volatility remains high and oil prices are still up over 40% year to date. Substantial infrastructure damage, a higher risk premium, and falling fuel inventories means we’re unlikely to go back to pre-war levels even if a deal comes quickly.
This wave of optimism has been enough to carry US stocks to fresh highs as the S&P 500 crosses 7,100 for the first time. The potential for a less severe inflationary oil shock has also seen 10-year Treasury bond yields fall nearly 8 basis points to 4.23%, with gold heading back up towards $,4900 per oz as interest rate expectations moderate. As of yesterday, Fed Fund Futures were pricing in just a 26% chance of a further quarter point cut in US rates this year, but in the space of 24 hours that’s now moved to 38%. Markets will want to see decisive action towards a durable peace if this shift is to be anything more than temporary.”
