US-Iran Ceasefire Sparks Global Rally
A two-week ceasefire between United States and Iran in an unexpected dramatic turnaround just a few hours before a promised U.S. military deadline has sparked a tremendous relief rally around the world. On Wednesday, the stock markets were in a free fall in the world and the price of crude oil was dropped the most in nearly six years to below the critical point of 100 per barrel.
The mediated pact by Pakistan averting an imminent escalation of the six-week war that had sabotaged oil markets and threatened to wind up the entire global economy. The truce was announced by U.S. President Donald Trump via social media and said that he had agreed to the suspension of bombing and attacking Iran during two weeks. This action came less than two hours before Iran was to meet a deadline he had set to be open to the strategic Strait of Hormuz otherwise its infrastructure would be destroyed.
A "Double-Sided Ceasefire"
The Iranian Foreign Minister Abbas Araghchi assured Tehran by saying that the Islamic Republic would end its defensive operations in case the attacks on it end. More importantly, Tehran was ready to guarantee transits of ships through the Strait of Hormuz, which carries nearly a fifth of transit of oil and gas, were secure, during the two-week truce, but only after negotiations with Iranian military personnel.
The creation was termed as a double sided ceasefire by President Trump who said that the U.S. had already achieved and surpassed all military goals. He divulged that Iran had given the administration a 10-point offer, which he termed as a viable foundation on which to bargain a lasting peace accord.
The truce has been limited to two weeks and both countries have been invited to Islamabad by Pakistan where they can start negotiating further. But Israeli Prime Minister Benjamin Netanyahu made it clear that the ceasefire would not be applicable now to the front with Hezbollah in Lebanon.
Market Rollercoaster; Oil Drops, Stocks Soar.
Investors were prompt to react to the de-escalation, by hastily shifting their bets en masse out of oil and on to risky assets. The West Texas Intermediate (WTI) crude dropped by over 14 percent to $96.98 per barrel whereas the Brent crude dropped by more than 12 percent to around 96 per barrel. The hopes that the energy supply in the Middle East would start again flowing free drove the slide.
On the contrary, a huge dose of optimism was injected on global stock markets. The U.S. futures shot up, with Dow Jones Industrial Average futures soaring almost 1,000 points, or more than 2%. S&P 500 futures and Nasdaq 100 futures rose over 2% as well.
The Asian markets have been the first to recover as the Nikkei 225 in Japan rose more than 5 per cent and the Kospi in South Korea rose over 6 per cent, leading to a trading halt. The Sensex of India jumped over 2500 points (3.37 percent) and the Nifty 50 jumped over 23800.
Hedging Dilemma
The rally did not only happen in equities in a market anomaly which points out to the fact that there is still a degree of uncertainty. Although the geopolitical risk had decreased, safe havens were still flocked by investors. Spot gold increased by 2.2% to $4,803 per ounce and the yield on the U.S. Treasury bonds decreased, which shows that defensive assets are still in demand.
It is simply a relief rally superimposing an underlining yet-weak macro environment, as Billy Leung, investment strategist of Global X ETFs, puts it. Investors are implementing risk at tactical level, and are holding or even adding defensives as a response to reversal or other headlines.
World Leaders welcome the Truce.
The global community has sighed with relief and it has been commending the efforts of Pakistan in diplomacy. The ceasefire was welcomed by the UN Secretary-General Antonio Guterres who urged all the parties involved to follow the international law and work towards complete and long-lasting peace.
Egypt called the truce a ‘very important opportunity’, which was attributed to Pakistan (and in particular) by Germany. The Malysian Prime Minister Anwar Ibrahim praised the never-tiring and brave diplomacy of Islamabad.
The same sentiments were expressed by the Australian Prime Minister, Anthony Albanese, who told Sky News Australia: it is a good news. We’ve been calling for a de-escalation for some time”.
Fragile Calm
Analysts are concerned that the situation is still weak, despite the euphoria. The truce is only an interim one and Israel has made it clear that war in Lebanon is not included in the agreement. Moreover, news came soon after the air defense systems were announced to be activated in the Gulf indicating the instability of the region.
A top market analyst said that they had 2 weeks to find out whether this handshake would work. With the negotiations in Islamabad on the way, a more long-lasting change may occur. Should they stop, such a bonanza of reprieve would turn back no more quickly than it started.
Powered by Froala Editor
