Markets bounce back as Trump postpones power plant strikes after ‘very good and productive’ talks with Iran
Stock markets as suddenly surging, after Donald Trump claimed that the US and Iran have held “very good and productive conversations” over an end to the conflict.
The London stock market has recovered almost all its earlier losses, after Trump also declared he had postponed any military strikes against Iranian power plants and energy infrastructure for five days.
Poting on Truth Social, Trump writes:
I AM PLEASE TO REPORT THAT THE UNITED STATES OF AMERICA, AND THE COUNTRY OF IRAN, HAVE HAD, OVER THE LAST TWO DAYS, VERY GOOD AND PRODUCTIVE CONVERSATIONS REGARDING A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST. BASED ON THE TENOR AND TONE OF THESE IN DEPTH, DETAILED, AND CONSTRUCTIVE CONVERSATIONS, WITCH WILL CONTINUE THROUGHOUT THE WEEK, I HAVE INSTRUCTED THE DEPARTMENT OF WAR TO POSTPONE ANY AND ALL MILITARY STRIKES AGAINST IRANIAN POWER PLANTS AND ENERGY INFRASTRUCTURE FOR A FIVE DAY PERIOD, SUBJECT TO THE SUCCESS OF THE ONGOING MEETINGS AND DISCUSSIONS. THANK YOU FOR YOUR ATTENTION TO THIS MATTER! PRESIDENT DONALD J. TRUMP
In the City, the FTSE 100 share index is now down just 10 points at 9907 points, having been down almost 250 points at its lowest level today.
Key events
European rally picks up pace
There’s no end to the volatility in the markets today.
The UK’s FTSE 100 share index is now up 63 points, or 0.64% today, at 9,983 points, despite the share prices of oil companies and weapons makers falling (BAE Systems are down 2.8%).
Tom Stevenson, investment director at Fidelity International, sums up the drama:
“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early on Monday, markets quickly regained their composure after threats to attack Iran’s power networks were abruptly withdrawn via a Presidential post on Truth Social.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. Having been as much as 2.5% lower, the FTSE 100 bounced back into positive territory within minutes of the US suspending its escalation threat.
“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. 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.
“As well as sharp recoveries in stock markets, bond prices rallied hard on the news. Gilts, where yields had risen above 5%, rose as the yield on the 10-year government bond dipped to 4.9%. That reflected a rapid drop in the price of oil, with the Brent contract falling 10% to $101 a barrel.
Today’s drama in the markets shows that the Bank of England should “sit tight” rather than react rapidly to events in the Middle East, says Professor Costas Milas, of the University of Liverpool’s management school.
Prof Milas tells us:
Trump’s predictably unpredictable post is puzzling. Having repeatedly stated that there is nobody to negotiate with, now Trump reveals that negotiations have taken place. All this creates large swings in financial markets and notably so in market expectations of UK interest rates. At the start of the war, money markets predicted no interest rate changes.
Earlier today, financial markets “concluded” that the BoE will raise interest rates from 3.75% to 4.75% before the end of the year. Now financial markets are thinking about more moderate interest rate rises and will have to wait for Trump’s next social post in order to change their mind yet again.
The point is that the sudden and constant change in market expectations of interest rates, almost entirely driven by Trump’s geopolitical actions and social media posts, demonstrates that the Bank of England’s policymakers should sit tight rather than rushing into any action!
Donald Trump just triggered “one of the most extraordinary market turnarounds in recent history,” says David Morrison, senior market analyst at financial services provider Trade Nation.
Morrison says US stock index futures “turned on a sixpence and roared higher” after Trump posted his (disputed claim) of productive talks with Iran.
He explains:
At around 10:45 GMT the S&P 500 had been trading near the low of the day, below 6,440 [points], and at its worst level since early September. Just twenty minutes later it was within sight of 6,700, jumping close to 4%.
The surge came after President Trump declared that: ‘… the US and Iran, have had, over the last two days, very good and productive conversations regarding a complete and total resolution of our hostilities in the Middle East.’ Crude oil prices cratered, while gold and silver, which had both sold off dramatically overnight, roared back to life tacking on 9% and 14% respectively from their session lows.
Iranian media deny that negotiations have taken place… it takes two to TACO
Iran’s Fars news agency has quoted a source as saying there has been “no direct or indirect connection” between Iran and Donald Trump, in contradiction to the US president’s statement.
Citing an unnamed source, Fars said Trump had retreated after hearing that Iran would respond by attacking all power plants in the region.
This has punctured some of the optimism in the markets.
Oil is now trading at $106.75 a barrel, still down 4.8% today, having ended last week around $112 a barrel.
European stock markets have slipped back a little too, but have still clawed back all this morning’s early heavy losses.
Germany’s DAX, for example, is still up 1%.
Neil Wilson, Saxo UK Investor Strategist, says:
Stocks have staged a monster rally off the lows after President Trump signalled the US and Iran have had “very good and productive conversations” over “total resolution” of hostilities, and that the US would postpone all military strikes against Iranian power plans and energy infrastructure for five days.
He posted on Truth Social but I would treat this with caution and it seems to already be refuted by Iran…it takes two to TACO remember.
Housebuilders and airlines surge, oil companies plunge
Shares in UK housebuilders and airlines are rallying, as are miners, on relief that Donald Trump has postponed his threatened attacks on Iran’s energy infrastructure.
Specialist chemicals firm Croda is the top riser on the FTSE 100 this morning, up 6.1%, leading today’s TACO rally.
Mining giant Anglo American (+5%), housebuilder Barratt Redrow (+4.5%) and airline IAG (+3.2%) are all in the top risers.
But BP and Shell are both down 3.5%.
UK bond yields falling
Rachel Reeves will be delighted to learn that UK government borrowing costs are dropping.
The yield, or interest rate, on UK 10-year bonds is now down 3bps at 4.95%, having earlier risen as high as 5.11%, the highest since 2008.
That suggests investors are lowering their expectations for the surge in inflation from the Middle East crisis.
Fears that the Bank of England might hike UK interest rates four times this year have faded.
The money markets are now only pricing in 72 basis points (0.72 of a percentage point) of increases to Bank rate this year, which implies three quarter-point rate cuts by Christmas.
IG: still big questions unanswered after Trump surprise
Trump comments have obviously provided a boost for markets, but traders may be questioning how long it will last.
Oil, for example, has now climbed back to $103.20 a barrel, still down 8% today, but no longer below the $100 mark which it burst through early in the Iranian war.
Chris Beauchamp, chief market analyst at IG, says:
“Trump has sprung his usual surprise on markets, pausing strikes on energy infrastructure as a result of successful talks. But this leaves big questions unanswered – Hormuz remains closed, the damage to energy infrastructure is still there and it is unclear whether airstrikes on other targets will continue.
While this was the headline investors have been hoping for, the fact that Brent has rebounded back above $100 shows that markets remain sceptical.”
US stock market futures up 2%
The US stock market is set to rally when reading begins in under two hours.
Investors are clearly relieved that Donald Trump’s threat to bomb Iran’s power facilities is now off the table – at least for five days.
As a result, Wall Street futures have jumped more than 2%, reversing earlier losses.
European gas prices have reversed their earlier gains, on hopes that energy supplies from the Middle East could be restored soon.
The month-ahead UK gas price is down 3.8% at 144.9p a therm, having hit 159p this morning.
European stock markets are romping higher too.
The pan-European Stoxx 600 share index is now up 1.3%, having been down as much as 2.5% this morning.
“TACO Time – Again” as markets force Trump to reescalate
Donald Trump’s sudden cheerful take on negotiations with Iran appear to be another example of the president’s TACO approach (Trump Always Chickens Out).
Michael Brown, senior research strategist at Pepperstone, says the rise in US borrowing costs, and the drop in shares on on Wall Street, have reached the Trump Administration’s ‘pain point’.
That has forced President Trump to look for an “off-ramp”, to begin de-escalating military action, he explains.
Brown says:
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This is clearly a positive development. The two sides are in discussions, and this is the first material sign of de-escalation that we have seen since conflict broke out at the end of February
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The war is not yet over. While positive, it is only strikes on energy infrastructure that have been ruled out at this stage, presumably meaning that kinetic action will continue elsewhere, at least for the time being.
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There are caveats. Trump notes in his post that the five day pause will be contingent on the success of ‘ongoing meetings and discussions’, meaning that things could escalate once more, if talks were to fall apart.
Oil tumbles over 10%
The oil price is plunging, with Brent crude dropping below the $100 a barrel mark a few minutes ago.
Traders are hailing Donald Trump’s post that the US and Iran have held “very good and productive conversations regarding a complete and total resolution of our hostilities in the Middle East.”
Chart: The FTSE’s wild morning
Blimey! The FTSE 100 share index is now up for the day, 50 points higher at 9963 points.
This chart shows how the index plunged at the start of trading, fell though the morning, and then dramatically bounced back a few minutes ago after Donald Trump said any and all” military strikes against Iranian power plants were postponed.
