Oil prices fell more than 4% and European shares gained on Wednesday on the possibility of a de-escalation in the Iran war.
European stock markets opened higher on Wednesday, in line with a more optimistic mood in Asia, driven largely by hopes that the US may be engaged in talks with Iran — even as Washington deploys thousands of troops to the Middle East, with no firm decision yet on ground deployment.
US President Donald Trump said that progress was being made in talks with Iran this week, and his postponement on Monday of a deadline to “obliterate” Iran’s power plants over the reopening of the Strait of Hormuz has also fueled optimism that an end to the Iran war could come soon.
Washington is said to have offered a 15-point ceasefire plan to Iran, but an Iranian military spokesperson mocked the US’s attempt at a ceasefire deal on Wednesday.
Leading European stock indexes were gaining in the opening, with the FTSE 100 in London being up by nearly 0.9%, the CAC 40 in Paris traded up by 1.4%, and the DAX jumped by 1.7% in Frankfurt.
“The FTSE 100 moved back through the 10,000 level, led by banks and miners,” said Russ Mould, investment director at AJ Bell. “Oil prices remained volatile as talk of a potential peace plan was offset by ongoing strikes in the Middle East and reports of the US sending more troops to the region,” he added.
In the UK, the latest inflation data show that prices rose by 3% in February compared with a year earlier, unchanged from the previous month.
“Today’s inflation reading of 3% on the headline measure and 3.2% on the core gauge needs to be treated with caution,” said Lindsay James, investment strategist at Quilter.
“It captures February, so it predates the escalation in the Middle East at the very end of the month.”
Analysts say the key question now is how persistent the impact of higher oil prices on inflation will be. “In the short term, the effect may be contained,” James added.
As for interest rate expectations from the Bank of England, these “have changed radically in recent weeks as the market braces itself for an inflationary shock,” Mould said.
