Stock markets roared higher and the oil price fell below $100 yesterday as reports of a possible US-Iran peace deal stoked renewed optimism about an end to the damaging conflict in the Middle East.
The FTSE 100 surged 2.2 per cent, or 219.55 points, to 10,438.7, enjoying its best day in a month, as miners, aviation stocks and banks raced ahead.
Shares also rallied across Europe and Wall Street indices climbed in early trading.
On oil markets, the price of a barrel of Brent crude tumbled from nearly $110 to below $97 – the first time it had been below $100 in two weeks – before rebounding to around $102.
Ten-year UK bonds, known as gilts, enjoyed their biggest rally in a month as the fall in oil prices eased inflation fears.
Gilt yields, which fall as their prices rise, dropped to close to 4.9 per cent. Traders are now betting on two, rather than three, Bank of England rate hikes this year.
Peace hopes: Markets were cheered by a report from Pakistan that the US and Iran were closing in on an agreement
Markets were cheered by a report from Pakistan that the US and Iran were close to agreeing a memorandum of understanding that could set the stage for a deal.
Iran said it was reviewing a new US proposal and media outlet Axios reported that Washington expects responses on key points in the next 48 hours, quoting sources suggesting it was the closest the two sides had come to an agreement since the war began.
However, optimism was tempered by the response from a key Iranian official, Ebrahim Rezaei, who described the reported proposal as ‘more of an American wish list than a reality’.
Nevertheless, the signs of progress represented a break with the escalation of recent days, after a short-lived US attempt to reopen the Strait of Hormuz failed to get traffic flowing and instead provoked a renewed wave of Iranian strikes on shipping.
A fifth of the world’s oil and gas pass through the Strait and its prolonged closure since the war began has thrown markets into turmoil, with oil hitting $126 last week, a four-year high.
Danni Hewson of investment platform AJ Bell said: ‘Key questions remain about how the Strait of Hormuz might operate in a post-war world and whether Tehran will even accept Washington’s overtures.
‘However, after it felt earlier in the week like the ceasefire was being strained to breaking point, investors clearly feel a resolution to the crisis could be closer than it has been for some time.’
Among the winners in London yesterday were miner Fresnillo, up 11.1 per cent, as well as British Airways owner International Airlines Group, up by 6.7 per cent.
The fall in the oil price sent BP 3.7 per cent lower and Shell down by 3 per cent.
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