Global Markets Rally 1.3% Despite Iran Missile Strikes

Global markets rallied and oil prices fell despite renewed missile attacks from Iran just minutes after Israel agreed to a ceasefire. Investors assessed the risk of a broader conflict to be minimal, shifting their focus back to fundamentals and the possibility of future U.S. interest rate cuts. The symbolic nature of Iran’s retaliation and reduced fears of disruption to oil supplies contributed to this market sentiment.

At 7:10 am London time, Israel officially agreed to a ceasefire deal announced by the U.S. President the previous night. However, just 81 minutes later, Iran launched a fresh round of missiles into northern Israel. Israel’s defense minister vowed a forceful response, while Iran denied resuming hostilities. Despite this, markets remained largely unfazed. Brent Crude prices barely moved, settling at $68 per barrel, below the levels seen when the U.S. launched an air raid on Iran’s nuclear facility. S&P futures were up nearly 1% in premarket trading.

All major Asian indexes rose, and the Stoxx Europe 600 was up a strong 1.3% in early trading. Even the VIX fear index, which measures market volatility, was down 13%. Investors seemed unconcerned about the potential for a broader conflict, which had been widely regarded as a potential catalyst for World War 3 just days prior. The market's reaction suggests that investors believe the risk of a wider conflict is minimal and that Iran’s options for further attacks are limited.

The euro, which had been weakening due to concerns about Europe’s vulnerability to oil shortages in the Middle East, began to recover. According to an analyst, the geopolitical drag on the euro seemed to have evaporated as markets shook off lingering conflict concerns. Iran’s retaliatory strike on an American air base was seen as symbolic, with ample advance warning, further easing market tensions.

This shift in market sentiment indicates that investors are returning to fundamentals rather than being driven by geopolitical risks. U.S. Federal Reserve Chair Jerome Powell’s testimony to Congress was closely watched for clues on potential interest rate cuts, which could provide a tailwind for stocks. Analysts suggested that rates could be cut over the summer, even as inflation rises.

The market’s ability to look through current tensions and focus on an environment of potentially less conflict in the region is evident. Historically, investors tend to take geopolitical events in stride if they have limited global economic impacts. The recent market action shows that investors are assessing the situation and returning to fundamentals, despite the ongoing geopolitical risks.