Global stock markets are rallying sharply after US president Donald Trump announced a peace deal with Iran, lifting sentiment across equities and commodities as investors unwound months of geopolitical risk premium.
The agreement is a 60-day memorandum of understanding (not a final settlement) that establishes a ceasefire across all active fronts, including Lebanon, commits Iran to abandoning nuclear weapons development and reopens the Strait of Hormuz to commercial shipping.
The deal has not yet been formally signed, with significant gaps remaining between the two sides' stated positions, and questions around Iran's enrichment programme are deferred to the negotiation period ahead.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "Global equity markets are starting the week firmly on the front foot.
"The move has given investors a clear reason to dial back some of the geopolitical risk premium that has hung over markets. There are still details to be ironed out before markets can fully trust the agreement, but for now the direction of travel is clear: lower oil, calmer nerves and a renewed appetite for risk."
Stock markets across Europe opened higher this morning, although the FTSE 100 posted minimal gains owing to its heavy weighting in oil & gas majors.
Chris Beauchamp, chief market analyst at IG, said the market reaction to the reported agreement is "something like euphoria".
"Equities are rejoicing on expectations of the free flow of oil through Hormuz, bringing prices down and slaying the inflation dragon that had been plaguing them for months," he said.
Oil had already been falling for much of the past month as markets priced in a probable breakthrough, but confirmation of a deal added fresh momentum. Brent crude fell to $83 a barrel, down more than 4% on the day and roughly 15% over the past week. UK gas prices dropped 6%.
"The backlog will take a while to clear, but oil prices aren't waiting. They are likely to fall further as more tankers make the passage," Beauchamp added.
However, Brent remains around 16% above pre-war levels and UK gas prices are still more than 30% higher, reflecting damage to Gulf region facilities and historically low global inventory.
Strategists at Edmond de Rothschild Asset Management noted that if a durable agreement is signed, "investors will be willing to look through these near-term pressures, choosing instead to focus on the mitigation of tail risks to growth and inflation".
Lower energy prices give central banks more room on inflation, but not enough to shift the policy outlook immediately. Markets are pricing in roughly a 50/50 chance of a US rate hike by year-end, while the UK looks more tilted toward a rise later in 2026.
"Worries about multiple rate hikes this year from the Bank of England look set to recede," said Susannah Streeter, chief investment strategist at Wealth Club, though she noted that with the UK economy contracting in April, policymakers face a difficult balance between inflation risks and a struggling growth backdrop.
Fed chair Kevin Warsh holds his first FOMC meeting on Wednesday, with the Bank of England expected to hold on Thursday. Britzman said: "Any suggestion that war-driven inflation is transitory could help calm rate expectations, though investors will naturally remain cautious about any transitory comments given how wrong that narrative turned out to be during the Covid saga."
Cyclical and technology sectors have outperformed sharply in recent days as rumours of the deal circulated, with tech stocks recovering ground lost ahead of the SpaceX IPO. Edmond de Rothschild's strategists, who had anticipated the recent equity consolidation, said they have returned to a positive outlook on equities and remain buyers of short-duration rates alongside investment grade and high yield credit.