Equities markets are surging after an early morning social media post from US president Donald Trump revealed ‘productive’ peace talks with Iran.
Investors had been bracing for a broad and deep sell-off after Trump gave Iran an ultimatum to open the Strait of Hormuz to shipping within 48 hours, or have its power plants bombed by the US and Israel.
In the post, written in all caps and with spelling mistakes, Trump said the ongoing talks meant he had instructed US forces not to proceed with the strikes while discussion continues.
The FTSE 100 had been steadily selling off in morning trading to slip under 9,700 points, before spiking back to the brink of 10,000 in a matter of minutes following Trump’s post on Truth Social.
Futures are now pointing to large gains in US markets when they open this afternoon. Before the post from Trump, they were indicating today would bring a deep sell-off.
Gilt yields had been spiking, with the 10-year paper topping 5%, while 10-year US Treasuries yield had climbed north of 4.4%.
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These yields have begun to fall back as investors see some hope an inflationary surge caused by energy prices may yet be avoided.
Oil has been the most volatile barometer of the status of the Middle East conflict, and the news of peace talks sent the price tumbling back down to around $90 from well above $100.
Whether this temporary reprieve leads to a solid peace deal is far from certain and the direction of markets through the rest of the week seems likely to be dependent on the prospects for this.
In practical terms, the 48 hour deadline has effectively been replaced with a five day deadline, albeit with talks ongoing, so a quick return to negative sentiment is likely unless a full ceasefire is agreed quickly.
Tom Stevenson, investment director, Fidelity International, said: “A dramatic U-turn by president Trump has once again triggered gyrations in global financial markets. After heavy falls across bonds, shares and precious metals early on Monday, markets quickly regained their composure after threats to attack Iran’s power networks were abruptly withdrawn via a Presidential post on Truth Social.
“With the White House’s change of direction happening after Asian markets closed but before the US opened, the shift in sentiment played out most clearly in European markets.
“As the week’s trading began, investors had been looking in vain for safe havens as global markets eyed president Trump’s deadline for Iran to re-open the Strait of Hormuz,” Stevenson continued.
“With Iran threatening retaliation if a promised attack on its power networks materialises, investors were concerned that the conflict has entered a newly dangerous phase.
“Despite a shaky start to the week, the impact on global markets remains relatively contained, as investors rightly price in the ever-present possibility that the US president might change tack.
“Investors are reluctant to give up on a market which continues to be supported by strong earnings growth and where an early resolution of the conflict could lead to a rebound in prices.”
