SINGAPORE: Oil prices plunged, global equities rallied, and the US dollar weakened on Wednesday after a two-week ceasefire in the Middle East triggered a wave of investor optimism, driven by expectations that oil and gas shipments through the Strait of Hormuz may resume.
The development followed weeks of intense market swings and geopolitical tension after US and Israeli strikes on Iran in late February pushed the situation to the brink, with Tehran effectively blocking the crucial waterway that typically handles about 20% of global oil and gas flows.
US President Donald Trump agreed to the ceasefire on Tuesday, just under two hours before his deadline for Iran to reopen the strait or face severe attacks on civilian infrastructure. Markets reacted sharply, with US crude futures dropping roughly 15% to $96.31 per barrel, while Brent crude fell 13% to $95.36.
S&P 500 futures rose more than 2%, and European stock futures jumped over 5%.
The US dollar declined broadly after previously serving as a safe haven during the turmoil.
In Asia, Japan’s Nikkei surged around 5%, while South Korea’s KOSPI climbed 6%, briefly triggering a trading halt.
MSCI’s broad Asia-Pacific index excluding Japan advanced 4%. Despite the rebound, investors remain cautious about committing to large positions until there is more clarity on whether the ceasefire will evolve into a broader resolution.
“Does it mean people are going to take new risks? No, it doesn’t,” said Martin Whetton, head of financial markets strategy at Westpac. “It would have to actually be a lasting peace (to change things). People aren’t actually taking risk.”
The six-week conflict has driven oil prices sharply higher, revived inflation concerns, and disrupted the global interest rate outlook, prompting governments and businesses to brace for an energy shock.
Trump’s announcement on social media marked a sudden shift from his earlier warning that “a whole civilization will die tonight” if his demands were not met.
Charu Chanana, chief investment strategist at Saxo, noted that the key test will be whether negotiations continue to make progress over the next two weeks, and whether insurers and shipping firms regain confidence to resume normal operations through Hormuz.
“That will determine whether this remains just a relief rally or starts to look more like a durable de-escalation.”
Gold prices rose more than 2% to $4,812 per ounce. In currency markets, the Australian dollar gained 1% to $0.7050, while the euro rose 0.68% to $1.16735.
The dollar index stood at 98.956, hovering near a one-month low.
Some analysts remain doubtful that the ceasefire will lead to lasting peace, warning that volatility may persist.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the underlying causes of the conflict are still unresolved, leaving room for renewed escalation.
“We maintain our view that the war will run into June. The implication is dollar losses may prove short-lived.”
US Treasury bonds rallied following the announcement, as traders reconsidered the possibility of Federal Reserve rate cuts later this year, though uncertainty over whether oil prices will return to pre-war levels limited optimism.
The yield on the benchmark US 10-year Treasury note fell 9.5 basis points to 4.247%, its lowest level since mid-March.
Meanwhile, the yield on the US 2-year Treasury note dropped to 3.727%.
“The bigger worry is that some damage may linger even with de-escalation,” said Chanana.
“The rates story can probably shift from ‘higher for longer because of war escalation’ to ‘cuts may still come, but not as cleanly or as quickly as before’.”
