Oil Tumbles, Stocks Surge on Middle East Ceasefire

Oil prices dived, stocks surged and the dollar was knocked back on Wednesday as a two-week Middle East ceasefire sparked a relief rally, fuelled by hopes that oil and gas flows through the Strait of Hormuz could resume.

The news capped weeks of market volatility and geopolitical upheaval after U.S. and Israeli strikes on Iran at the end of February pushed tensions to the brink, with Tehran effectively choking off the strategic waterway that typically carries about 20% of the world’s oil and gas.

U.S. President Donald Trump on Tuesday agreed to a ceasefire with Iran, less than two hours before his deadline for Tehran to reopen the strait or face devastating attacks on its civilian infrastructure.

Market reaction was swift and dramatic, with U.S. crude futures CLc1 down around 15% to $96.31 a barrel, while Brent futures LCOc1 also slid 13% to $95.36 per barrel.

S&P 500 futures ESc1jumped more than 2%, while European futures STXEc1leapt more than 5%. The U.S. dollar fell broadly, having been the haven of choice during the tumult. FRX/

In Asia, Japan's Nikkei .N225 surged about 5% while South Korea's KOSPI.KS11 rose 6%, triggering a brief halt in trading. That left the MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS up 4%.

Beyond the immediate relief, investors remain keen to see whether the ceasefire leads to a broader resolution before placing major bets.

"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 sent oil prices soaring, reignited inflation fears and thrown the global rates outlook into disarray, forcing governments and companies to scramble for cover against a sudden energy shock.

Trump's social media announcement marked an abrupt reversal from hours earlier, when he issued an extraordinary warning that "a whole civilization will die tonight" unless his demands were met.

Charu Chanana, chief investment strategist at Saxo, said the pivotal test is whether negotiations keep progressing over the next two weeks - and whether insurers and tanker operators regain enough confidence for traffic through Hormuz to run normally again.

"That will determine whether this remains just a relief rally or starts to look more like a durable de-escalation."

Gold prices XAU=climbed more than 2% to $4,812 per ounce. GOL/

In currencies, the risk-sensitive Australian dollar AUD= rose 1% to $0.7050 and the euro EUR= gained 0.68% to $1.16735. That left the dollar index =USD at 98.956, hovering near a one-month low.

Some analysts remain sceptical that the ceasefire will translate into lasting peace, warning of likely twists and turns ahead.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the conflict’s root causes remain unresolved, keeping the risk of re‑escalation firmly on the table.

"We maintain our view that the war will run into June. The implication is dollar losses may prove short-lived."

U.S. Treasuries rallied after the announcement with traders putting the prospect of rate cuts from the Federal Reserve later in the year back on the table, although doubts about whether oil prices will go back to pre-war levels kept enthusiasm in check.

The yield on the benchmark U.S. 10-year Treasury note US10YT=RR dropped 9.5 basis points to 4.247%, the lowest since mid-March. The yield on monetary policy-sensitive U.S. 2-year Treasury notes US2YT=RR fell to 3.727%.

"The bigger worry is that some damage may linger even with de-escalation," said Saxo's 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'."

(Reuters - Reporting by Tom Westbrook and Ankur Banerjee; Editing by Jamie Freed, Chris Reese, Shri Navaratnam and Kevin Buckland)