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3. Cautious Optimism as Oil Prices Decline and Stock Markets Rebound

Oil prices continued to decline on Wednesday, leading to a rebound in stock markets, as traders appeared willing to believe in the possibility of a peace plan proposed by Donald Trump to Iran. “Market movements are driven by narratives and headlines: today, everything revolves around the prospect of a ceasefire,” summarized Neil Wilson, analyst at trading platform Saxo Markets.

Iran also stated that “non-hostile vessels” can now “benefit from safe passage through the Strait of Hormuz in coordination with the relevant authorities,” according to the International Maritime Organization. “This is a major development for the oil market, paving the way for a recovery in global oil flows,” said Kathleen Brooks, research director at XTB.

As a result, at the opening of Wall Street at 13:30 GMT, crude prices were down by more than 5%. Brent crude from the North Sea, the global oil benchmark, was trading at $99 per barrel, while WTI, its U.S. equivalent, stood at $87.65.

As oil remains the main market indicator, Wall Street opened sharply higher.The Dow Jones rose 1.15%, the Nasdaq 1.16%, and the S&P 500 0.95%.

European stock markets also followed suit, confirming their rebound observed earlier in the day. Frankfurt’s DAX rose 1.70%, Paris’s CAC 40 gained 1.49%, London’s FTSE added 1.29%, and Milan’s index climbed 1.71%. “Markets are pricing in the possibility of a ceasefire, even if the prospect of a lasting resolution still seems distant,” noted Neil Wilson.

Iran and the United States are “currently” negotiating to try to end the conflict, U.S. President Donald Trump said on Tuesday. Several media outlets, including the The New York Times and Israeli TV channel Channel 12, report that the Trump administration has proposed a 15-point peace plan to Iran via Pakistan, which maintains good relations with both sides.

According to three unnamed sources cited by Channel 12, the United States is proposing a one-month ceasefire to allow Iranian authorities time to review the demands. Even though Tehran’s position remains uncertain, “oil prices have declined following these developments, providing some relief to equity markets,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Calm returns to government bond yields

The wave of relief is also visible in sovereign debt markets, with yields declining on Wednesday. The yield on Germany’s 10-year bond (Bund), the European benchmark, stood at 2.95% around 13:30 GMT, compared with 3.03% at the previous close. It had been around 2.64% before the outbreak of the Middle East conflict.

Its French equivalent yielded 3.65%, down from 3.76% on Tuesday. Outside the EU, the UK 10-year yield stood at 4.83%, compared with 4.96% the previous evening.

“Investor sentiment is cautiously improving thanks to hope, but fundamentals have been affected after nearly a month of fighting in the Middle East and disruptions around the strategic Strait of Hormuz,” said Ipek Ozkardeskaya, analyst at Swissquote.

“The macroeconomic environment has deteriorated over the past month,” with higher energy prices, “rising operating costs, and margins likely under pressure,” she explained. As a result, “expectations regarding the Federal Reserve and other major central banks have shifted in a more restrictive direction, as markets increasingly question the Fed’s ability to cut rates this year,” she added.

AFP