The ceasefire between Israel and Iran appears to be holding, despite some military action yesterday, and the markets are celebrating.
All major global indexes in Asia were up this morning. The VIX “fear” index (which measures volatility) was down nearly 13% and the price of oil stayed at $68 per barrel. Europe was flat. S&P futures are also flat this morning—a possible signal that investors are not yet ready to sell off for short-term profits.
“Financial markets have priced in an Iran-Israel ceasefire holding,” UBS’s Paul Donovan told clients this morning. “That skews the risks if there is any further military activity. Intelligence reports suggesting the US failed to destroy Iran’s nuclear program are unlikely to impact markets directly (investors do not price extreme tail risks), but that failure probably keeps tensions high in the region (which markets do care about).”
Convera’s Antonio Ruggiero agreed: “Markets showed a modest revival in risk appetite—oil prices and the dollar declined, while the S&P rose nearly 1%,” he said in a note seen by Fortune.
Investors may also be hoping for further declines in the price of oil (which would be good for stocks). “The decline [in the price of oil] first occurred as Iran’s response was perceived by the market as de-escalatory and then extended as news of an Israel-Iran ceasefire emerged. Our commodities team estimates that Brent would be trading in the mid-60s in the absence of a geopolitical risk premium, suggesting further declines are possible if the ceasefire solidifies,” Goldman Sachs’ Kevin Daly and Clemens Grafe told their clients.
Here’s a snapshot of the action prior to the opening bell in New York:
