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Stock markets jumped in early trading — including a big rise in UK real estate shares — as a two-week ceasefire to the conflict in Iran was announced Tuesday night, reviving the prospect of interest rate cuts.
The FTSE 350 Real Estate Index of UK property shares rose 5.5% in early UK trading after President Donald Trump announced the temporary cessation of hostilities between the U.S. and Iran.
Stock markets across the world rose, and bond rates fell: Two-year and five-year Treasuries fell by 7 and 5 basis points, respectively, early on Wednesday, while UK two- and 10-year government bonds fell by 20 basis points.
That is because a ceasefire and renewed talks for an end to the war increase hope that inflation will not rise as much as had previously been feared.
The ceasefire agreement includes a proposal for Iran to open the Strait of Hormuz, and oil prices fell by more than 10%, to less than $100 a barrel, following the announcement.
Lower oil prices mean lower inflation, which reduces the prospect of interest rate rises, which, before the announcement, appeared a distinct possibility.
Last week, financial markets were pricing in three interest rate rises by the Bank of England this year, but they are now pricing in one hike. Markets are pricing in a 60% chance of one rate cut in the U.S. this year, Bloomberg reported.
Despite the positivity in markets, there remains much uncertainty about how events will now unfold, with little detail available about the workings of the ceasefire and no certainty that any truce will lead to a long-term peace.
As a result, oil remains well above the $70 a barrel at which it traded before the conflict began.
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