John Wyn Evans, head of market analysis at Rathbones, said: 'Trump’s decision to postpone further strikes on Iran has given markets a brief pause, but is not necessarily a meaningful step towards full de-escalation.'
Investors are being urged to respond “only to verified facts” in the face of further Middle East volatility, with equity and bond markets experiencing wild swings today (23 March).
Global stocks tumbled this morning following US and Iranian threats to carry out more strikes on energy infrastructure, with the FTSE 100 down 1.4%, France's CAC 40 dropping 1.7% and S&P 500 futures sinking 0.6%, according to data from MarketWatch.
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Yields on UK 10-Year and 30-Year gilts also soared to over 5% and 5.7%, respectively.
However, after US President Donald Trump's announcement earlier today of a postponement of strikes for a five-day period following "productive conversations" with the Iranian regime, markets rose sharply, with the FTSE 100 recovering to trade 0.5% higher, the S&P 500 up 2% and the Nasdaq rising 2.3% at the time of reporting.
Brent crude, which had been trading above $113 per barrel earlier in the day, dropped to trade at around $100 at the time of reporting.
"Markets have been taken on a wild ride, as investors have swung from deep pessimism to giddy optimism about the trajectory of the war with Iran," said Wealth Club chief investment strategist Susannah Streeter.
Clinging to Trump's words, however, "is fraught with risks", she said, while even if the US and Iran come to some agreement, bringing Israel fully on board "may prove difficult given the nation's renegade tendencies".
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George Lagarias, chief economist at Forvis Mazars, urged investors to respond only to verified facts as "de-escalation is as much on the table as re-escalation".
"Investors should remain calm and respond only to verified facts and agreed upon deals," he said. "Until investors get assurance of at least a medium-term resolution that would ensure the resumption of normal trade in the Persian Gulf, they would do well to remain reserved."
John Wyn Evans, head of market analysis at Rathbones, concurred: "Trump's decision to postpone further strikes on Iran has given markets a brief pause, but is not necessarily a meaningful step towards full de‑escalation. If anything, the delay underscores just how delicately balanced the situation has become."
This has created an unusually asymmetric market landscape, he added, where each day without resolution "exerts a slow downward pull on markets", yet the potential for a sharp squeeze higher remains very real if there is even a hint of a credible ceasefire.
"Trump's pause only reinforces that optionality, not because it increases the probability of peace, but because markets are conditioned to seize on any reduction in headline risk, however temporary," he explained.
Gilts ‘under heavy pressure'
Meanwhile, gilt markets remain under heavy pressure despite 10-Year and 30-Year yields dropping to 4.76% and 5.37%, respectively, following Trump's announcement.
Investors are trying to work out "whether this is simply an energy shock or the start of something more stagflationary", said Craig Veysey, fixed income lead at Guinness Global Investors.
Market movements in gilts have been much more severe than government issuance in other major markets, noted Veysey, particularly at the front end, reflecting "both the UK's sensitivity to energy prices and the sharper repricing of the Bank of England path".
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On Thursday last week (19 March), the BoE's Monetary Policy Committee voted unanimously to hold at 3.75%, striking a more united hawkish tone than many had expected.
"The scale of the UK repricing has been remarkable. At the end of February, the market was still pricing roughly two BoE rate cuts by year-end. At the peak of the current move, it had swung to fully pricing three hikes today," Veysey said.
Charles Stanley head of fixed income research Oliver Faizallah, however, said the sharp move in short-end gilts "seems overdone", while some of the moves at the longer end seemed more reasonable given the increased fiscal concern around the cost of defence spend and spending on household bills.
"Supply driven cost-push inflation remains a concern, and it is likely that the BoE will hold off on future interest rate cuts. However, given the fragility of the UK economy, we may see a softening of rhetoric from the BoE going forward, and a continued unwind of some of the aggressive sell-off seen at the short end of the gilt curve at the end of last week," Faizallah explained.
Veysey added: "The key issue is no longer just the initial spike in oil. It is how persistent the shock proves to be, what it does to inflation expectations and whether central banks can still look through it."
