Oil slumps and markets rally as Trump announces Iran-Israel ceasefire

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The geopolitical fears that have gripped the markets for almost two weeks are fading, after President Trump declared that Israel and Iran have negotiated a ceasefire.

The oil price has slumped back to its levels before the Israel-Iran conflict began, easing fears of a stagflationary slump hurting the world economy.

Brent crude tumbled on Monday, as hopes rose for a lasting pause in the Middle East clashes. It’s dropped by another 3.1% this morning to $69.25 per barrel.

A chart showing the Brent crude oil price this year Illustration: LSEG

That’s Brent’s lowest level since 11 June, the day before Israel launched a series of strikes against Iran’s nuclear and military sites.

Monday’s selloff was a surprise – oil slumped after Iran launched a retaliatory missile strike on a US airbase which was well-telegraphed in advance, and unsuccessful.

That eased fears that Tehran might attempt to close the strait of Hormuz, disrupting the flow of a third of the world’s oil.

The oil selloff continued on Tuesday morning, after Donald Trump declared that a ceasefire between Israel and Iran was in force.

Just after 6am UK time, he posted:

“THE CEASEFIRE IS NOW IN EFFECT. PLEASE DO NOT VIOLATE IT! DONALD J. TRUMP, PRESIDENT OF THE UNITED STATES!”

Markets across the Asia-Pacific region have rallied, while the US dollar is dipping as investors move out of safe-haven currencies (details to follow..).

The agenda

8am BST: UK grocery inflation report from Kantar
11am BST: CBI industrial trends report on UK factory sector
2.30pm BST: Treasury committee hearing into fair pricing
3pm BST: Bank of England governor Andrew Bailey testifies to the Lords Economic Affairs Committee
3pm BST: Federal Reserve chair Jerome Powell testifies to Congress 3pm

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If the Israel-Iran ceasefire holds, investors could return to worrying about a global trade war instead.

The clock is ticking towards 9 July, when the 90-day tariff pause set by president Trump in April expires.

So far, the UK is the only country to have signed a trade deal with the US since the ‘Liberation Day’ announcement of hefty new tariffs.

Concerns that tariffs could be reimposed next month have driven a surge of imports into the US.

Chinese ports just had their busiest week on record, probably due to exporters racing to get goods into the US as quickly as possible, after Beijing and Washington agreed a “framework agreement” at talks in London this month.

Bloomberg explains:

Some 6.7 million standard containers were shipped domestically and internationally last week, the Ministry of Transport said on Tuesday.

The almost 6% jump in traffic from the previous week came after a trade truce agreed with Washington earlier in June. In May, Chinese exports to the US fell the most since the early days of the pandemic.

Vietnam, Taiwan and Thailand have all reported record exports to the US in May, while shipments from South Korea were near a record last month.

Oil has pushed even lower, after the Israeli government confirmed reports that it agreed to a ceasefire proposal brokered by the US.

Israel says:

Israel thanks President Trump and the United States for their support in defense and their participation in eliminating the Iranian nuclear threat.

In light of achieving the objectives of the operation, and in full coordination with President Trump, Israel has agreed to the president’s proposal for a bilateral cease-fire.

This has pushed Brent crude down by 5% today, to below $68 per barrel, adding to the 7% tumble on Monday.

Our Middle East liveblog has all the latest developments:

Fresh from declaring peace in the Middle East, president Trump has returned to a favourite topic – blasting America’s top central banker.

Posting on his Truth Social site, Trump claims rates should be “two to three” percentage points lower, and claims Federal Reserve chair Powell is “dumb” and incompetent.

Trump, who is due in The Hague later today for the Nato summit, wrote:

“Too Late” Jerome Powell, of the Fed, will be in Congress today in order to explain, among other things, why he is refusing to lower the Rate. Europe has had 10 cuts, we have had ZERO. No inflation, great economy – We should be at least two to three points lower.

Would save the USA 800 Billion Dollars Per Year, plus. What a difference this would make. If things later change to the negative, increase the Rate. I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come. THE BOARD SHOULD ACTIVATE. MAKE AMERICA GREAT AGAIN!

[Factcheck: the European Central Bank has actually cut interest rates eight times, not 10, in the last year.]

The Fed last cut interest rates in December 2024, to a range of between 4.25% and 4.5%, and has held them since – partly due to fears that Trump’s trade wars will push up prices.

Despite all the fears over the weekend, over the last 12 hours we’ve seen a pretty remarkable de-escalation of tensions in the Middle East, reports Deutsche Bank’s market strategist Jim Reid.

The best scorecard of this has been the price of oil which now trades just below $70/bbl, having opened at just over $80/bbl early yesterday morning in Asia.

Brent crude (-7.18%) posted its biggest daily decline since 2022 and is subsequently trading another -2.56% lower this morning at $69.65/bbl, close to the levels before Israel’s strikes against Iran on June 13. Easing geopolitical concerns helped the S&P 500 rebound +0.96%, with futures another +0.55% higher overnight.

The US dollar has weakened against a basket of currencies this morning.

This has pushed the pound up by half a cent, to $1.3575, and the euro by a third of a cent to $1.161.

The US dollar’s status as a safe-haven currency has been questioned recently, due to fears over America’s debt pile and trade war fears. These moves, though, suggest it has benefitted from safe-haven inflows, which are now unwinding.

Stock markets across the Asia-Pacific region have been swept higher by hopes of a lasting ceasefire in the Middle East.

China’s main markets are up between 1.1% and 1.6%, with Hong Kong’s Hang Seng gaining 1.8%.

In South Korea, the KOSPI index has jumped over 3%, while Japan’s Nikkei 225 is up 1.3%.

The ‘“tentative ceasefire” between Iran and Israel is supporting a relief rally, reports Kyle Rodda, senior financial market analyst at capital.com, who explains:

The moves in the markets have been considerable, especially as market participants priced-out the war premium that had been slowly discounted over the course of the past fortnight and had briefly increased at the Asian open yesterday.

Oil prices are down almost 9% on that fact alone, taking pressure off yields and helping stock valuations rebound, with Wall Street surging, led by longer-duration stocks in the tech space. Ultimately, the drop in implied volatility also boosted stocks prices, as investors looked beyond the conflict between Iran and Israel.

There is always the risk of complacency and that these moves are premature. But, once again, as long as the aforementioned parameters remain unmet, the moves are likely to stick.