The ceasefire in Iran has triggered a rally across equity markets. Overnight, Donald Trump announced a two-week truce, while Iran is expected to once again allow vessels to transit through the Strait of Hormuz. In Europe, the CAC 40, DAX, and EuroStoxx 50 are literally steaming ahead, up around 5%. Should these gains hold until the close, it would mark the sharpest rise since March 2022.
As my colleague Thomas Barnet explained this morning, most sectors are benefiting from this rebound. Energy stocks are correcting in the wake of oil prices. Meanwhile, a few defensive plays, such as Orange or Engie, are being sidelined in this relief rally.
Over the first two months of the year, European indices had posted a solid performance, hitting several all-time highs. Most notably, Europe was advancing while Wall Street was mired in fears of AI disruption and concerns surrounding private credit.
The conflict in Iran caused performances to converge. The chart does not account for today's rebound.
However, the war in Iran completely reshuffled the deck of cards. Europe stands on the front line regarding the consequences of the energy crisis. Investors grew concerned about both the shock to growth and the impact on inflation. Traders had even priced in up to three rate hikes by the ECB in 2026.
Today's rebound is the result of Donald Trump's pivot, shifting from a promise to annihilate Iran to a ceasefire in just a few hours. It was a move that caught everyone off guard and likely proved costly for hedge funds. According to the Financial Times, the latter had amassed a record number of short positions on European equities.
