TACO time: Oil tumbles and stocks surge after Trump's last-minute ceasefire
NYSE
- Oil tumbled and stocks surged after President Trump announced a two-week ceasefire with Iran.
- It's a fresh case of Trump triggering a relief rally in markets by reversing course on an ultimatum.
- The de-escalation is welcome news for an S&P 500 that finished Tuesday down 5% from recent highs.
The TACO trade is alive and well.
About 90 minutes before the 8 p.m. ET deadline set by Donald Trump for a deal with Iran, the president announced a two-week ceasefire.
Brent crude futures slumped as much as 16%, while WTI crude plummeted as much as 19%. Both grades are below $95 per barrel as of just after 7 a.m. ET.
Stock futures on all three major US indexes ripped higher, and stocks in Asia and Europe surged in Wednesday trade.
And with that, the now-famous "Trump Always Chickens Out" trope has come to fruition yet again. Investors were waiting for it, and ready to take profits on oil.
To the market's credit, it didn't fall for Trump's fiery threat on Tuesday that "a whole civilization will die tonight" — the S&P 500 and Nasdaq actually finished positive in regular-hours trading. After more than a few TACO instances, traders are getting wise to Trump's push-and-pull routine.
The de-escalation is welcome news for an S&P 500 that finished Tuesday down 5% from recent highs. Brent crude, meanwhile, is still 50% above where it was before the Iran war started.
Here's a rundown of major moves as of 7 a.m. ET on Wednesday:
- Brent crude: -14% to $93.90
- WTI crude: -16% to $94.72
- S&P 500 futures: +2.7%
- Dow Jones Industrial Average futures: +2.7%
- Nasdaq 100 futures: +3.5%
- Germany's DAX: +5%
- Euro Stoxx 50: +5%
- Britain's FTSE 100: +3%
- Japan's Nikkei 225: +5.4%
- Hong Kong's Hang Seng: +3.1%
- China's Shanghai Composite: +2.7%
"Investors' wish for a ceasefire has been granted, triggering a rally across financial markets and pulling down the oil price," Dan Coatsworth, head of markets at AJ Bell, said in a morning note.
"Make no mistake — this is a pause in the proceedings and not a full resolution," he continued. "That means any market rebound could quickly lose momentum unless there is clear progress with US and Iran talks."
Those lingering concerns didn't stop traders from paring their bets on near-term rate hikes to counter inflation. The yield on Germany's 10-year government bond plunged by more than 18 basis points to 2.9% in early trading.
Several benchmark energy prices fell, but remained well above their pre-war levels. Wholesale gasoline futures for May (RBOB) tumbled 10% to $2.97 a gallon, but they cost less than $2 in late February. Dutch TTF natural gas futures for May fell 15% to 45 euros per megawatt-hour, but they traded around 32 euros in late February.
Michael Wan, a senior currency analyst at MUFG, cautioned that securing a durable deal could be difficult given that Iran's demands "seem hard for different parties, including Israel and the Gulf states, to accept."
"As such, we think any agreement on paper will likely be an extremely unstable equilibrium, and we think further meaningful bouts of volatility are more likely than not moving forward," Wan wrote in a Wednesday note.
He added that key questions remain over what concessions Iran might offer in return and that even in the event of a breakthrough, energy markets may not stabilize immediately.
While market participants may welcome ships resuming transit through the Strait of Hormuz, the key question is "which ships will be going back IN to take fresh cargoes back out," June Goh, a senior oil market analyst at Sparta Commodities, wrote in a post on X.
A two-week ceasefire is likely too short to establish a sustained rebound in inbound traffic, she added.