Stocks soared, bonds rallied and the dollar weakened on Wednesday, as growing optimism that the Iran conflict could ease sparked a powerful rebound across global markets.
US futures pointed higher, with the S&P 500 set to extend a sharp 2.9% rally from the previous session its biggest daily gain in nearly a year. In Europe, the STOXX 600 jumped 2.4%, driven by strong gains in travel, aerospace and defence stocks, while German bond yields edged lower.
Asian markets also posted significant gains earlier in the day, with MSCI’s broadest index of Asia-Pacific shares outside Japan rising 4.7% its strongest performance since November 2022.
Investor sentiment was lifted after US President Donald Trump suggested that American military action against Iran could end within two to three weeks, fuelling hopes of a possible de-escalation.
Market strategists say the rally reflects a shift in investor positioning, with traders betting on reduced geopolitical risks. However, uncertainty remains, as hostilities continue and key players in the conflict have yet to signal any firm commitment to a ceasefire.
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Despite reports that the UAE may seek involvement in the conflict and concerns over the strategic Strait of Hormuz, markets largely brushed off the risks, instead focusing on the potential for an end to the fighting.
Oil prices fell amid the shifting outlook, with Brent crude dipping below $103 per barrel, reversing earlier gains seen during the conflict. Meanwhile, gold prices climbed as investors balanced optimism with caution.
The US dollar also extended its decline, as traders reassessed expectations for Federal Reserve policy, with rising bets that interest rate cuts could come sooner than previously anticipated.
While markets are responding positively to hopes of a resolution, analysts warn that significant uncertainties remain, particularly around the broader economic impact, oil supply disruptions, and the long-term implications of any US withdrawal from the conflict.
Investors are now turning their attention to upcoming economic data, including US employment figures and manufacturing activity, for further clues on the health of the global economy
