Global Markets Rally as Iran-Israel Ceasefire Eases Tensions; Oil Prices Plunge

Global financial markets responded strongly to news of a ceasefire between Iran and Israel, as confirmed by U.S. President Donald Trump. Following recent U.S. airstrikes on Iran’s nuclear facilities and a limited Iranian response, both nations have agreed to halt hostilities. The announcement led to a sharp 4% drop in oil prices and a surge in global stock markets, reflecting optimism that the threat to Middle Eastern stability, particularly the vital Strait of Hormuz, has subsided for now.

Brent crude futures, already down 7% on Monday, continued their slide to $67.68 per barrel, the lowest level since June 11. U.S. crude dropped to $66.02 per barrel. The easing of geopolitical tensions shifted investor focus back to economic concerns such as the approaching tariff negotiations. Analysts believe the unexpected de-escalation in the Middle East could spark hope for faster resolutions in ongoing trade disputes.

Equity markets welcomed the de-escalation with enthusiasm. U.S. futures rose, S&P 500 by 1% and Nasdaq by 1.3%, while European shares gained as well, led by travel companies benefiting from lower oil prices. Conversely, energy stocks suffered due to the drop in crude. In Asia, Japan’s Nikkei index gained 1.1% and MSCI’s index of Asia-Pacific shares (excluding Japan) rose 2.2%, as investors rotated back into risk assets.

Meanwhile, talks on trade tariffs are gaining momentum. Japan’s chief negotiator is planning a seventh round of discussions with the U.S. in an effort to ease trade restrictions that have impacted Japan’s economy. Despite the geopolitical backdrop, bond markets remained relatively steady, reflecting a balancing act between reduced safe-haven demand and waning inflation fears due to cheaper oil.

On the monetary policy front, Fed officials have begun hinting at potential interest rate cuts amid weakening labor market signals. While the Federal Reserve is unlikely to cut rates at its July meeting (with markets pricing in only a 22% chance), expectations are rising for a cut by September. The dollar weakened on the news, especially against the yen and euro, which were buoyed by declining energy prices. Fed Chair Jerome Powell’s upcoming testimony is expected to offer more clarity on the path forward.

Source: Reuters