Less than 12 hours after making apocalyptic threats about the fate of Iran, President Donald Trump announced a two-week ceasefire brokered by Pakistan. The effect of his statements was immediately seen on the stock markets.
The market reaction was swift and dramatic, Reuters comments. The announcement of an agreement between Washington and Tehran was extremely well received in the markets, according to AFP.
Oil prices quickly fell by more than 15%, falling back below $100 a barrel.
It's the biggest one-day drop in oil prices since the 1991 Gulf War, according to Axios.
The global reference price of Brent crude oil futures reached around 93 dollars per barrel.
Rises in Asian stock markets
However, it is still well above the level of around $73 reached just before the war broke out in late February.
Stocks in Tokyo and Seoul were up 4% and 6% respectively at the open. The US dollar was broadly lower after being a safe haven during the turmoil.
US President Donald Trump accepted a truce with Iran on Tuesday, less than two hours before a deadline he had given Tehran to reopen the Strait of Hormuz or face devastating attacks on its civilian infrastructure.
Skepticism among specialists
Beyond the immediate relief, investors remain eager to see whether the ceasefire will lead to a broader resolution before making major bets.
“Does that mean people will take on new risks? No, it doesn't,” said Martin Whetton, head of financial markets strategy at Westpac, an Australian bank. “It would actually have to be a lasting peace (to turn things around). People don't actually take risks.”
Charu Chanana, chief investment strategist at Saxo, a Danish investment bank, said the litmus test was whether negotiations would continue to progress over the next two weeks.
And the price of gold rose more than 2% to $4,812 an ounce.
Some analysts remain skeptical that the ceasefire will translate into lasting peace, warning of possible twists and turns in the future.
Carol Kong, currency strategist at the Commonwealth Bank of Australia, said the root causes of the conflict remain unresolved, keeping the risk of further escalation the order of the day.
“We maintain our view that the war will drag on until June. The implication is that the dollar's losses may prove short-lived,” Kong said.
