Asian and European Equities Surge as Oil Prices Plunge 13%

Asian and European equities saw a massive risk-on surge on Wednesday following a Pakistan-brokered ceasefire between the U.S. and Iran.

Key Takeaways:

Asian and European equities surged Wednesday as markets breathed a sigh of relief after the U.S. and Iran agreed to a ceasefire brokered by Pakistan. Leading the charge in Asia was South Korea’s Kospi index, which jumped 377 points to 5,872—an approximately 7% gain—while Japan’s Nikkei 225 rose 5.4%. The risk-on sentiment triggered by the cessation of hostilities extended to the Hang Seng and the Shanghai Composite, which climbed 3.1% and 2.7%, respectively.

Despite lingering confusion regarding other terms of the accord, the cessation of hostilities caused Brent crude to tumble from over $110 per barrel to $94.50, a 13% decline. Similarly, West Texas Intermediate, which briefly touched $117 on Tuesday, plunged 15% to $95.50 per barrel.

Meanwhile, analysts warn the two-week ceasefire may merely be a tactical pause, allowing the U.S. and Israel to recalibrate military assets before hostilities potentially resume. Still, analysts at Deutsche Bank noted that investors are breathing a “big sigh of relief” now that an “off-ramp” has been taken, asserting the pause prevents a systemic collapse of global energy supply chains that appeared imminent last week.

“A two-week ceasefire would enable a release of some oil and LNG tankers from the Strait of Hormuz to market, providing some market pressure relief in May,” Kavonic said. “This does not result in more production, just a release of storage on water.”

Economists further argue that while the ceasefire might prevent additional interest rate hikes, it is unlikely to trigger the rate cuts markets had anticipated earlier this year. It remains to be seen if all parties will adhere to the agreement, as competing propaganda regarding which side “won” the conflict is expected to test the resolve of U.S. and Israeli leaders.