Futures tracking the major U.S. stock benchmarks surged after the United States and Iran agreed to a temporary ceasefire in their conflict that has stretched beyond a month. Tehran’s commitment to allow safe tanker traffic through the Strait of Hormuz helped calm concerns about disruptions to global energy supply, pushing crude prices sharply lower. Gold rebounded as the U.S. dollar weakened, while Shell (NYSE:SHEL) trimmed its first-quarter gas production outlook and warned that the conflict continues to cloud the market outlook.
Futures jump
U.S. equity futures rallied strongly early Wednesday as investors reacted positively to the ceasefire agreement, which reduced the risk of a broader and economically damaging war in the Middle East.
At 03:19 ET, Dow futures had climbed 1,076 points, or 2.3%. S&P 500 futures rose 168 points, or 2.5%, and Nasdaq 100 futures advanced 799 points, or 3.3%.
In the previous session, Wall Street’s main indices had traded cautiously as investors awaited a U.S. deadline for Iran to reopen the Strait of Hormuz or face possible military strikes. On Tuesday, President Donald Trump warned that the United States would wipe out Iran’s “civilization” if his demands were ignored, a remark that triggered debate over whether it was rhetorical pressure or a serious warning.
An agreement mediated by Pakistan was eventually reached at the last minute, a development that markets welcomed. Global equities rallied and oil prices dropped, while U.S. Treasuries gained as investors revived expectations that the Federal Reserve could still cut interest rates later this year. Earlier, many rate-cut bets had faded due to fears that a war-driven energy shock could fuel inflation.
Analysts at Vital Knowledge wrote that companies that had benefited from the conflict — including energy producers, commodity chemicals firms and defense contractors — “will probably suffer aggressive profit taking” now that tensions have eased. Meanwhile, consumer discretionary stocks “should see the biggest rally.”
Attention shifts to ceasefire details
Trump said on social media that the deal followed discussions with Pakistani leaders, who have recently acted as intermediaries between Washington and Tehran. After Islamabad urged him to reconsider the Tuesday 8 p.m. ET deadline, Trump agreed to halt planned strikes against Iran for two weeks.
Iranian Foreign Minister Abbas Araghchi said Tehran would “cease their defensive operation” and permit “safe passage” through the Strait of Hormuz, provided maritime traffic is coordinated with the Iranian military. Pakistan’s Prime Minister Shehbaz Sharif has invited U.S. and Iranian representatives to Islamabad for talks scheduled for Friday.
Israel, which launched a joint offensive against Iran alongside the United States in late February, supported the decision, according to a statement from the office of Prime Minister Benjamin Netanyahu. However, the statement did not mention Lebanon, where the Iran-backed group Hezbollah has been targeted by Israeli forces.
Even with the ceasefire, analysts at BCA Research cautioned that “[a] near-term reprieve in the Iran conflict will not erase medium-term and strategic tensions.”
Oil falls back below $100
Crude prices slid sharply after the ceasefire announcement, dropping below the $100-per-barrel threshold but remaining well above levels seen before the conflict erupted.
By 03:44 ET, Brent crude — the global benchmark — had fallen more than 13% to $94.85 per barrel. U.S. West Texas Intermediate crude dropped 14.8% to $96.23 per barrel.
Before hostilities began in late February, Brent had been trading near $70 per barrel. After the conflict erupted, prices surged to roughly $120 at one stage, sparking fears that higher energy costs could stoke inflation and slow global economic growth.
One of the central drivers of the spike was the Strait of Hormuz, the narrow shipping lane along Iran’s southern coast that carries about one-fifth of the world’s oil supply. Tehran effectively blocked the route, severely disrupting energy shipments worldwide.
Asian economies — which depend heavily on oil shipments through the strait — were especially exposed. Meanwhile, strikes on energy facilities in Persian Gulf countries also disrupted natural gas flows to Europe. Although the United States exports more oil than it imports, American consumers still saw higher gasoline prices as global crude costs surged.
Analysts at ING said markets will now watch closely whether tanker traffic through the Strait of Hormuz begins to normalize.
“[A] significant pick-up in volume would weigh further on oil prices and reverse the stagflationary investment trends witnessed in markets over the last month,” they wrote.
Gold rebounds as dollar weakens
Gold prices climbed to their highest level in nearly three weeks as markets reassessed geopolitical risk following the ceasefire news.
Spot gold rose 2.4% to $4,818.63 an ounce by 03:57 ET (07:57 GMT), after earlier reaching its strongest level since March 19. U.S. gold futures for June delivery advanced 3.4% to $4,843.57 per ounce.
Despite its reputation as a safe-haven asset, gold struggled for much of the conflict. The surge in oil prices intensified inflation worries and boosted expectations that the Federal Reserve might keep borrowing costs higher for longer — typically a negative factor for non-yielding assets such as gold.
Instead, investors initially favored the U.S. dollar, which made gold more expensive for buyers using other currencies. But with hopes growing that tensions in the Middle East may ease, the dollar weakened on Wednesday, with an index tracking the currency against a basket of peers falling by more than 1%.
Shell trims gas outlook, cites uncertainty
Even as markets respond to the ceasefire, analysts warn that the economic effects of the conflict could linger for months.
Oil major Shell (NYSE:SHEL) provided one example on Wednesday, cutting its forecast for first-quarter gas production and warning that short-term liquidity may take a hit — even though profits from oil trading are expected to increase.
In its quarterly trading update, the company said working capital — a measure of short-term liquidity — is now expected to fluctuate between minus $10 billion and minus $15 billion, largely due to sharp swings in crude prices affecting inventories.
Shell added that its financial outlook remains “subject to increased uncertainty” because of the evolving situation in the Middle East. Shares of the London-listed company fell by more than 6%.
