FTSE 100 rallies 2% as oil worth eases on newest Iran battle de-escalation try by the US

The FTSE 100 has recovered from Tuesday’s losses as energy and borrowing costs start to ease on renewed optimism that the US-Iran ceasefire will hold.

London’s main index is trading up 223 points – or 2.18 per cent – at 10,442, in early trading, having closed down 1.4 per cent on Tuesday.

Relief has spread across markets this morning as President Donald Trump said the US will pause ‘Operation Epic Fury’ to guide ships through the Strait of Hormuz.

Germany’s Dax and France’s Cac are up 1.5 and 1.6 per cent, respectively, while the European-wide Stoxx 600 has jumped 1.5 per cent.

The UK was the outlier across European markets on Tuesday, as it played catch-up after the bank holiday, and borrowing costs soaring amid a re-escalation of hostilities between the US and Iran.

The prospect of a prolonged conflict and its impact on inflation and rate hikes pushed up government borrowing costs, with 30-year gilt yields hitting the highest level since 1998.

US Secretary of State Marco Rubio said the ‘offensive’ stage of the war with Iran was over 

There are also growing concerns that a change in the Labour leadership after Thursday’s local elections could trigger a lurch to the Left.

This morning, gilt yields have fallen back, with 10-year and 30-year gilts both slipping around 6 basis points to 4.997 per cent and 5.68 per cent, respectively.

Susannah Streeter, chief investment strategist at Wealth Club, says: ‘Relief is starting to seep into the bond markets, with UK gilt yields easing off amid hopes that inflation might not head quite as high if a longer-term resolution can be negotiated.’

While bond markets might have welcomed the de-escalation, Lindsay James, investment strategist at Quilter, warns it will be a bumpy ride over the coming months.

‘While equity markets remain willing to look through the impact of the US war with Iran – at least while the economy seems able to shrug it off – bond markets, with coupons that do not generally adjust with inflation, cannot,’ she said. 

‘With no concrete signs that a resolution is near, and political winds changing in the UK at the worst moment, this summer looks likely to be a turbulent one not only for airlines but potentially for markets too.’

It came as oil prices fell for a second day on expectations that the ceasefire could hold. 

In a social media post, Trump said he would pause the operation in the Strait ‘for a short period of time’ to see if a peace deal with Iran ‘can be finalised’.

US Secretary of State Marco Rubio also told reporters that the ‘offensive’ stage of the war was over.  

The price of a barrel of crude is now at $106, having closed at around $110 yesterday. But there are still lingering concerns over the fate of the Strait of Hormuz, as it remains effectively closed.

Anglo American and Fresnillo led the FTSE 100’s biggest risers this morning, gaining 6.42 and 6.13 per cent, respectively, as the price of gold rose over three per cent to $4,698. 

Smith & Nephew led the biggest fallers, shedding 3.54 per cent, despite reinstating its guidance for the year, followed by BP and Shell, which slipped 1.89 and 1.09 per cent, respectively.