Stocks soar and oil sinks as buyers cheer ceasefire – however analysts warn of contemporary turmoil as fragile truce hangs by a thread

Stock markets surged and borrowing costs fell yesterday as investors breathed a sigh of relief over the ceasefire between the US and Iran.

The FTSE 100 jumped 2.5 per cent, or 260 points, to 10,609 – its biggest rally in a year – as the price of oil fell as much as 17 per cent towards $90 a barrel.

The more domestically-focused FTSE 250 leapt 4.1 per cent, or 878 points, to 22,435 in its largest jump since 2022.

And yields on UK ten-year bonds, known as gilts, plunged from more than 4.8 per cent to less than 4.7 per cent.

The pound climbed from less than $1.33 against the dollar to nearly $1.35, its highest since the start of March. Sentiment was boosted by the prospect of an end to a conflict that has choked off energy supplies.

The price of a barrel of Brent crude oil, which has soared close to $120, saw one of its biggest one-day falls on record – tumbling from $109 to $90 before partly recovering to around $95.

Ceasefire boost: The FTSE 100 jumped 2.5% to 10,609 as US stocks joined the rally, with the S&P 500, Dow Jones and the Nasdaq all more than 2% higher

In Europe, Germany’s DAX market roared more than 5 per cent higher, France’s CAC 40 surged 4.5 per cent and Italy’s FTSE MIB added 3.7 per cent.

US stocks joined the rally, with the S&P 500, Dow Jones and the Nasdaq all more than 2 per cent higher.

Among the winners in London were aeroplane engine maker Rolls-Royce – up 11.9 per cent – while British Airways owner International Airlines Group flew 8.1 per cent higher.

Housebuilders, boosted by the prospect of a milder path for interest rates, also saw big rises, with Persimmon up 8.6 per cent and Taylor Wimpey adding 6.4 per cent.

As oil prices fell, energy giant BP was down 5.8 per cent while Shell lost 4.7 per cent. 

The FTSE’s rally left it just 2.8 per cent below its record high at the end of February, having been as much as 9.3 per cent below its peak just a couple of weeks ago.

Danni Hewson, a financial analyst at AJ Bell, said: ‘This represents one of the best days for the index in recent years as a step back from the brink of a major escalation is received with an almost audible outward breath.’

Yet Hewson noted ‘considerable uncertainty’ continues to hang over the region and the prospect that energy exports via the Strait of Hormuz will resume.

The strait’s closure has been at the centre of the economic maelstrom created by the war.

‘Even if a lasting peace agreement is reached, damage to infrastructure and the shutting in of production means ramping up energy exports from the region is not as simple as just turning on a tap,’ said Hewson. 

‘Close attention is likely to be paid to details of how supplies can be restored and how quickly.’

The price of Brent crude is significantly above its pre-war level of $72. 

And while ten-year gilt yields – which rise as their prices fall – have recovered after hitting an 18-year high of more than 5 per cent, they are still well above the 4.2 per cent rate before the conflict.

That will continue to pose a headache for Chancellor Rachel Reeves as heightened borrowing costs hamper her ability to pay for any relief for households and businesses battered by soaring energy and fuel costs.