Shares rally, oil slumps as Iran-Israel ceasefire goes into effect
Global shares rallied and the dollar extended declines on Tuesday as a ceasefire to end a 12-day war between Iran and Israel came into effect, while oil prices dived to nearly two-week lows on easing concerns about supply disruptions.
Most of the moves came after US President Donald Trump announced late on Monday that Iran and Israel had agreed to a ceasefire. A few hours later, Trump said the ceasefire was now in effect and urged both countries not to violate it.
Oil prices fell more than 3 per cent, having already slid 9 per cent on Monday when Iran made a token retaliation against a US base, which came to nothing and signalled it was done for now. With the immediate threat to the vital Strait of Hormuz shipping lane seemingly over, US crude futures fell another 3.7 per cent to $65.96 per barrel, the lowest since June 11 before Israel's attacks on Iran began.
'With markets now viewing the escalation risk as over, market attention is likely to shift towards the looming tariff deadline in two weeks,' said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities.
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'Our sense is that the quicker-than-expected resolution to the Middle East conflict leads to expectations for a swifter resolution on tariffs and trade deals.'
In Europe, Stoxx 50 futures jumped 1.5 per cent and FTSE futures rose 0.4 per cent. The MSCI's broadest index of Asia-Pacific shares outside Japan jumped 2.2 per cent while Japan's Nikkei rallied 1.3 per cent.
The yen and euro benefited from the slide in oil prices as both the EU and Japan rely heavily on imports of oil and liquefied natural gas, while the United States is a net exporter.
'The market was so well hedged against a major tail-risk event to play out…the actions and the dialogue we've seen highlight that the tail risks have not and will highly unlikely materialise,' said Chris Weston, head of Research at Pepperstone. Ten-year Treasury yields were mostly steady at 4.338 per cent, having declined 5 bps overnight after Federal Reserve Vice Chair for Supervision Michelle Bowman said the time to cut interest rates was getting nearer as risks to the job market may be on the rise.
Federal Reserve chairman Jerome Powell will have his chance to comment when appearing before US Congress later on Tuesday and, so far, has been more cautious about a near-term easing.
Markets still only imply around a 22 per cent chance the Fed will cut at its next meeting on July 30. The risk-on mood saw gold prices ease 1 per cent to $3,333 an ounce. - Reuters
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