European equities surged to their largest single-day advance in almost a year as investors flocked to the market following news that the United States and Iran have agreed to a two-week ceasefire. In exchange, Tehran will reopen the Strait of Hormuz. The Europe STOXX 600 index climbed 3.5%, marking its most significant daily gain since April 2025. Shares of Antofagasta Plc, ArcelorMittal, and easyJet soared more than 13%, leading the index higher, spurred by a sharp decline in energy prices.
On Tuesday evening, US President announced via social media that the US and Iran had reached a provisional two-week ceasefire agreement. This decision came less than two hours before the expiration of a deadline set for the "opening of the Strait of Hormuz." Under the terms of the agreement, the US will suspend planned military strikes against Iranian infrastructure, while Iran has committed to fully, immediately, and safely reopening the Strait of Hormuz. This strategic waterway facilitates approximately 20% of global oil shipments. The Pakistani government played a crucial mediating role, with formal negotiations expected to commence this Friday in Islamabad.
When markets opened on Wednesday, European exchanges experienced a powerful relief rally. The STOXX 600 opened 3.6% higher, recording its largest intraday jump since April 2025. Major national indices showed exceptional strength: Germany's DAX index surged approximately 5%, France's CAC 40 index rose 3.6%, and the UK's FTSE 100 index gained about 2.5%.
"Markets are moving extremely fast, creating the conditions for a rebound," said Neil Birrell, Chief Investment Officer at Premier Miton Investors. "It's not surprising to see significant gains in the regions and sectors that were hit hardest."
Wednesday's rally was amplified by substantial short positions and bearish stances from systematic investors. Emmanuel Cau, a strategist at Barclays, noted that equities could experience a "powerful short squeeze" as hedge funds and commodity trading advisors unwind protective positions previously established to hedge against the risk of further escalation in the Iran conflict.
"A significant reduction in positioning by CTAs/hedge funds, seasonal tailwinds in April, and a still-solid economic backdrop mean equities are prone to a powerful short squeeze and high-beta bounce," Emmanuel Cau wrote in a report. "Even if the oil price spike does not fully reverse, the path of least resistance for equities is likely higher."
Since the outbreak of conflict in the Middle East in late February, the STOXX 600 had declined 6.8% and was virtually flat for the year-to-date. At the time of reporting, Brent crude futures fell below the $100 per barrel mark during Wednesday's session, dropping as much as 13.5% to around $95. US WTI crude futures also recorded their largest decline in nearly six years, falling to approximately $96.
It is noteworthy that while the ceasefire provided market relief, it did not meet demands for restrictions on Iran's nuclear, missile, or drone programs, nor did it indicate a US readiness to meet Iran's desire for a permanent agreement and the lifting of sanctions.
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