Markets cheer ceasefire, but risks linger over Hormuz flows and oil stability

• Brent crude dropped near $90/barrel (lowest in a month) and WTI fell nearly 20% from overnight highs as ceasefire eased supply concerns
• S&P 500 briefly broke above 6,800 (four-week high), recovering sharply from near 6,300 (eight-month low) hit days earlier
• Probability of a 25-basis point Fed rate cut before year-end jumped to 36% from 13% as lower oil prices reduced inflation pressure; US dollar weakened below 98.50

Market Summary: Ceasefire Eases Hormuz Crisis, Sparking Broad Risk Rally

Key Development:

A last-minute ceasefire between the US/Israeli coalition and Iran, brokered by Pakistan, halted escalating tensions over the Strait of Hormuz just hours before President Trump's ultimatum deadline. Iran presented a 10-point proposal framework, securing a two-week cessation of hostilities contingent on halting attacks on shipping vessels.

Market Reactions:

*Oil Markets:* Crude prices plunged dramatically, with front-month Brent dropping near $90/barrel (lowest in a month) and WTI experiencing a nearly 20% decline from overnight highs to lows. Both contracts recovered slightly but remained below $100/barrel.

*Equities:* The S&P 500 surged above 6,800, reaching a four-week high—a stark reversal from near eight-month lows around 6,300 just days earlier.

*Fixed Income:* US Treasury yields fell sharply as reduced oil prices eased inflation concerns. Rate cut expectations shifted significantly, with the CME FedWatch Tool showing a 36% probability of a 25-basis-point cut by year-end, up from 13% the previous day.

*Currency & Commodities:* The Dollar Index dropped sharply, retesting 98.50 support after failing to break above 100.00 resistance. This weakness boosted precious metals.

Key Uncertainties:

The ceasefire's practical implications remain unclear. Questions persist about potential Iranian tolls for Strait passage and whether two weeks allows sufficient time to restore normal shipping operations and repair damaged energy infrastructure around Gulf States.

Market Implications:

While investors welcome the de-escalation, sustainable peace-building efforts are critical to maintaining positive sentiment. The dramatic market moves reflect both relief and lingering concerns about regional stability and energy supply chains.