Oil prices plunged Wednesday while stocks soared after the United States and Iran agreed to a two-week ceasefire that will see Tehran temporarily reopen the vital Strait of Hormuz.
With Donald Trump’s deadline approaching for the Islamic Republic to reopen the waterway or face obliteration, he announced a halt to attacks for two weeks and said he had received a “workable” 10-point proposal.
Iran later said it had agreed to safe passage in the Strait, through which a fifth of global oil and gas passes.
The news pushed down crude prices, with West Texas Intermediate losing almost 20 per cent and Brent as much as 16 per cent as investors heaved a huge sigh of relief after more than five weeks of war that has hammered supplies.
Market reaction was swift and dramatic, with U.S. crude futures down around 15% to $96.31 a barrel, while Brent futures also slid 13% to $94.71 per barrel.
S&P 500 futures rose 2.5%, while European futures leapt more than 5%. U.S. Treasuries rallied while futures for German bunds and French OATs surged.
The U.S. dollar fell broadly, having been the haven of choice during the tumult.
The euphoria sent global equities rocketing on hopes that the crisis that has shocked the global economy for more than a month would come to an end.
In Asia, Japan’s Nikkei jumped about 5% while South Korea’s KOSPI vaulted 6%, triggering a brief halt in trading. That left the MSCI’s broadest index of Asia-Pacific shares outside Japan up 4%.
Seoul jumped 6.9 per cent and Tokyo 5.4 per cent, while Taipei added more than four percent and Mumbai 3.8 per cent.
Hong Kong advanced nearly three percent, while Sydney, Shanghai, Bangkok, Manila, Jakarta, Singapore, and Wellington were also sharply higher.
London rallied out of the blocks with Paris and Frankfurt, while US futures soared.
Middle East stocks also rallied, with Dubai jumping 8.5 percent, the biggest intraday increase since December 2014, according to Bloomberg.
Stocks in Abu Dhabi climbed more than three percent, which was the largest gain since March of the same year.
Trump had threatened Tuesday that if Hormuz was not reopened, “a whole civilization will die tonight, never to be brought back again”. That came after he vowed to bomb bridges, power plants, and other civilian infrastructure in Iran.
Iran warned it would deprive the United States and its allies of oil and gas “for years” if he did so.
However, as the world counted down to the cutoff, the US president took to social media to say: “Subject to the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz, I agree to suspend the bombing and attack of Iran for a period of two weeks.”
