Markets breathed a very tentative sigh of relief this morning following the announcement that Iran and Israel have reached a ceasefire agreement. It appears that the Israeli government ultimately determined that a sufficient number of their objectives have been achieved without the need for regime change, something that would have generated significant uncertainty on multiple dimensions.
Whilst an end to the bloodshed is to be welcomed, the situation remains extremely fragile. A ceasefire announced by Trump several hours earlier proved short lived after an Iranian missile hit targets in Israel and Israel continued its bombing raids. There has subsequently been a missile fired from Iran into northern Israel although it is not clear if this was a rogue event nor if Israel will retaliate.
If the ceasefire holds – and there is no guarantee that it will - it will undoubtedly be greeted positively by markets as it will at the margin reduce uncertainty. However, the hostilities had only a limited effect on markets even during the height of the tensions so an ending to the war will likely have only a small positive impact.
The most important and profound way in which the ceasefire will impact financial markets is via the oil price, which had spiked by around 15% following the start of Israel’s attacks on Iran.
