Global stock markets experienced a significant rally on Wednesday, driven by burgeoning hopes for a resolution to the ongoing conflict in the Middle East, even as Iran reportedly rejected a peace plan proposed by the United States. This surge in investor sentiment led to notable gains across major indices, while oil prices cooled in response to diplomatic optimism.
Market Optimism Amid Diplomatic Rumours
Investors are closely monitoring developments, with many pinning their hopes on a 15-point ceasefire deal unveiled by the US, despite initial rejections from Iranian officials. Dan Coatsworth, head of markets at AJ Bell, noted, "Investors are pinning their hopes on a 15-point ceasefire deal unveiled by the US despite the proposals apparently being rebuffed by Iran." This sentiment fueled a broad-based rally, with the FTSE 100 index closing up 141.68 points, or 1.4%, at 10,106.84. Similarly, the FTSE 250 ended up 339.68 points, or 1.6%, at 21,475.45, and the AIM All-Share leapt 15.15 points, or 2.1%, to 729.24.
European and US Markets Follow Suit
European equities mirrored this optimism, with the CAC 40 in Paris closing up 1.1% and the DAX 40 in Frankfurt ending 1.4% higher. Joshua Mahony, chief market analyst at Scope Markets, commented, "European markets are following the wider global theme of optimism as rumours swirl around the apparent negotiations that could lead us out of the conflict in Iran." In New York, stocks also advanced, with the Dow Jones Industrial Average and S&P 500 index both up 0.6%, and the Nasdaq Composite firming 1.0%.
Oil Prices Ease as Diplomatic Efforts Intensify
Oil prices retreated as US President Donald Trump expressed optimism about ending the war, stating that officials were "in negotiations right now." Brent oil was quoted at $100.91 a barrel at the London equities close, down from $103.95 late on Tuesday. However, Iranian state television, citing an unidentified senior official, reported that Iran had rejected the US peace plan, with the official asserting, "The end of the war will occur when Iran decides it should end, not when Trump envisions its conclusion." This rejection has not been officially confirmed by Iranian authorities, adding to market uncertainty.
Geopolitical Risk and Market Implications
Morgan Stanley highlighted in a research note that the oil market is unlikely to return to pre-conflict conditions, raising its 2027 forecast Brent estimate to $80 per barrel. The bank stated, "The market has now learned something that it cannot easily unlearn: the flow of oil through the Strait of Hormuz can in fact be cut off. Given the volume of oil involved, that amounts to a structural repricing of geopolitical risk in oil markets." In London, BP rose 1.3%, while Shell fell 0.8%, reflecting mixed reactions within the energy sector.
Currency and Bond Market Movements
The pound was quoted lower at $1.3377 at the London close, compared to $1.3394 on Tuesday. In bond markets, the yield on the US 10-year Treasury narrowed to 4.32% from 4.38%, and the yield on the US 30-year Treasury trimmed to 4.89% from 4.94%. European Central Bank chief Christine Lagarde addressed the energy shock, vowing that policymakers would not be "paralysed by hesitation," though the ECB kept interest rates on hold last week amid warnings of higher inflation and lower growth in the eurozone due to the war.
Notable Stock Performances
On the FTSE 100, Croda rose 3.3% after Morgan Stanley upgraded the specialty chemicals firm to 'overweight' from 'equal-weight,' noting its strong performance in inflationary cycles. Endeavour Mining gained 4.5% as gold prices climbed, with the yellow metal trading at $4,554.59 per ounce. Conversely, Experian fell 1.4% following a decline in its US peer, Fair Isaac Corp. The biggest risers included Endeavour Mining, Pershing Square Holdings, Anglo American, GSK, and ICG, while the biggest fallers were Entain, Relx, Experian, Bunzl, and Shell.
Looking Ahead
Thursday's global economic calendar features consumer confidence reports in France and Germany, along with US weekly initial jobless claims. In the UK, the corporate calendar includes full-year results from clothing and homeware retailer Next, which may further influence market dynamics. As diplomatic efforts continue, investors remain cautiously optimistic, balancing hopes for peace against geopolitical uncertainties that could reshape global markets in the coming weeks.
