The Overnight Report: How Fragile The Ceasefire?

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Overseas markets rallied sharply higher with European and Asian markets outperforming the US, due to relative oil dependency.

While embracing the ceasefire, markets are increasingly focused on proof the deal is holding ahead of the US/Iran negotiations in Islamabad on Saturday (AEST).

After a strong performance yesterday, ASX200 futures are pointing to a weaker start.

Good Morning,

The Australian share market embraced the Iran ceasefire and rallied sharply higher.

Yesterday, the ASX200 rose 223 points of 2.6% to 8,952.

Technology rallied 7.3% and miners also led the market higher, while energy fell -7.2% on easing oil prices.

Today’s Big Picture, J.L. Bernstein extract

 Iran and U.S. Agree to a Fragile Truce

Trump announced a pause on attacks, contingent on the Strait of Hormuz reopening.

The first ships are moving, but Iran’s parliamentary speaker already accused the U.S. of violating the deal hours later.

They meet in Islamabad on Friday.

Nuclear enrichment, sanctions, troop withdrawal, compensation. 

Oil Drops but the Supply Problem Is Real 

WTI fell to around US$94, Brent near US$95. Sounds great until you realize 11 million barrels per day are still shut in, according to Wood Mackenzie.

Restarting that production could take six to nine months.

Tanker operators are not going to risk their fleets on a two-week handshake. 

Rate Cut Odds Jump, but the Math Is Tricky 

Traders priced rate cuts back in and killed all hike bets.

Rate cut odds hit 43% by December, up from 14% yesterday.

But Nick Timiraos at the WSJ makes a sharp point: removing the recession scenario actually makes it harder for the Fed to cut, not easier.

The inflation problem never went away.

Energy costs that built up over the last five weeks won’t fully reverse even if this ceasefire holds.

ANZ Bank, Australian Morning Focus extract

Equity markets rallied strongly with gains seen across all major markets as oil futures plunged following the US-Iran ceasefire.

That said, there is a sense in markets the ceasefire is fragile.

The S&P500 rose 2.5% and, in Europe, the EuroStoxx50 and the FTSE100 indices closed 5% and 2.5% higher, respectively.

The yield on the US 10y Treasury note rose overnight, but compared to this time yesterday it is little changed at 4.29%.

Germany: Factory orders rose 0.9% m/m in February, well below the consensus of a 3.0% m/m rise. February’s modest increase followed an -11.1% m/m fall in January.

Through the last quarter of 2025, optimism for a meaningful recovery in the manufacturing sector had emerged, underpinned by expectations of fiscal support flowing through.

However, the first two months of 2026 haven’t lived up to those expectations. Headwinds stemming from the conflict in the Middle East have now further dented the prospect of a recovery in the coming months.

Whilst the market’s optimism has been unwavering through today’s session, the mood has been punctuated by concerning headlines, and the situation in the Middle East remains fragile.

Saudi Arabia’s east-west oil pipeline, which is an alternative export route to the Strait of Hormuz, was struck by a drone, though the damage is reported as limited.

Iranian media reported the Strait of Hormuz remains closed until Israeli operations in Lebanon stop. US-Iran negotiations are set to take place in Pakistan on Friday.

The ceasefire is welcome news and has reduced risks but the disruption in energy markets is set to persist for several months, and central banks will remain vigilant to upside inflation risks.

Flows through the Strait of Hormuz will be closely watched over the coming days.

ANZ Bank, Commodities extract

Crude oil futures plunged after the US and Iran agreed to a two-week ceasefire deal. The agreement raised hopes of a de-escalation of the conflict, following threats from both sides last week.

A 10-point proposal developed by Iran is said to form the basis of negotiations with the US. This included sanctions relief from the US side and a reopening of the Strait of Hormuz by Iran. The latter point raised hopes of an end to the disruption to oil supplies.

Over a fifth of the world’s supply transits the key waterway, causing producers to slow or halt output. We estimate that 44% of capacity at Persian Gulf producers has been curtailed.

The combined output of the Gulf’s four largest producers collapsed -35% from February to March. Lost exports to the international market are even greater.

However, oil futures reversed some of these losses, as reports emerged the Strait remained closed. Iran’s semi-official Fars news agency said the passage of oil tankers through the strait has been halted following Israeli attacks on Lebanon.

Sporadic fighting has also continued in the region. Concerns the ceasefire will fail to hold are likely to see reluctance by oil exporters and ship owners to put their vessels back into the region in the near term.

Key data from the US Energy Information Administration showed how quickly stockpiles are being drawn down across all major oil product categories. Distillate stocks on the US Gulf Coast are at their lowest level since September 2024. Gasoline inventories have shrunk to their smallest in 16 years.

Global gas prices fell sharply following the ceasefire deal. European gas futures fell by more than -17% to EUR45/MWh, while North Asia LNG prices are set to fall by a similar amount.

Adding to hopes the worst is over, reports emerged Qatar is preparing to restart production at its Ras Laffan LNG export facility. The operation halted in early March.

However, a complete recovery remains years away. An Iranian attack on part of the facility took out -17% of its capacity, and it could take up to five years to get back to full production.

Even if the strait reopens, the market will clear through higher prices, inventory drawdowns and demand rationing. Overall, the conflict has shifted the outlook from gradual easing to prolonged tightness.

Copper hit a three-week high on hopes of an end to the Middle East conflict. The industrial metal advanced 3.2% to settle at US$12,709/t on the LME as the global market rediscovered its appetite for risky asset classes.

Aluminum failed to benefit from the moves, having already been supported by supply disruptions from key producers in the Persian Gulf. The region accounts for nearly a tenth of the world’s output of the metal.

Producers such as Rio Tinto ((RIO)) have hiked premiums on some key semi-processed products in the US by 12% in recent weeks due to the disruptions.

Gold also gained along with global equity markets amid the sharp rebound in risk appetite. However, it pared some of those gains after signs the ceasefire was at risk.

This followed an announcement by the Iranian parliamentary speaker, Mohammad-Bagher Ghalibaf, that three clauses of the proposal have been violated so far. 

Global Commodity Strategy, Iran Quick Take, RBC Capital extract, Helima Croft

After threatening the annihilation of the Iranian civilization at the start of the day yesterday, President Trump was in turn able to pull a proverbial rabbit out of the hat by announcing a surprise 14-day ceasefire.

While the announcement has triggered a sharp selloff in paper oil prices, questions about the deal’s durability loom large.

Gulf countries have been subject to a significant wave of attacks since the ceasefire was announced. The UAE’s Ministry of Defense has reported 17 ballistic missiles and 45 drone attacks had been intercepted since the ceasefire took place.

Kuwaiti officials have also reported “intense” attacks throughout Wednesday, targeting oil infrastructure and three power and water desalination facilities, with 28 drones intercepted at the time of writing.

A pumping station on Saudi Arabia’s key East-West Pipeline —which has allowed the Kingdom to maintain exports in excess of 5 mb/d— was also struck earlier this morning. These Gulf countries are unlikely to be pleased with a deal that essentially enshrines a US$2m Tehran tollbooth fee.

We continue to contend that actual transit levels through the waterway will remain significantly depressed given that Iran is insisting vessels must coordinate with its military or face destruction. 

Most critically, Iranian state media has reported transit through the Strait of Hormuz is now halted in response to ongoing Israeli attacks on Lebanon.

Additionally, Parliamentary Speaker —and presumptive leader negotiator— Ghalibaf has stated three clauses of the ceasefire plan have already been violated, raising the key question of who is going to enforce the terms of the deal.

The issue of Iranian enrichment will likely loom large in the negotiations, which are set to commence in the coming days in Islamabad. Washington’s zero enrichment demands doomed previous rounds of talks, and President Trump has already indicated he is sticking with his maximalist position.

Hence, we see three possible paths for the talks:

1) the divide between Washington and Tehran’s negotiating positions proves too difficult to bridge and fighting resumes;

2) a deal is reached that largely meets Iran’s established enrichment and missile priorities and comes with the added bonus of Hormuz control;

3) a no-peace, no-hot-war pause of indeterminate duration emerges that renders the ultimate security of region’s waterways unsettled.

Regardless of the outcome of the talks, unblocking the Strait of Hormuz will prove protracted, as a number of countries and companies will resist coordination of passage and payment with Iran. 

Saudi Arabia has already issued statements calling for the reopening of the Strait without restrictions in line with UN conventions and may continue to use the East-West Pipeline and Red Sea exit routes in order to avoid having to obtain permission from Iran to traverse a waterway.

Before last night’s announcement, officials from the UAE made very public calls for ending Iranian control over the Strait, and hence, we think Abu Dhabi will reject Tehran’s transit terms.

It is also noteworthy that Singapore has already released a statement indicating it will not negotiate with Iran, claiming it is in violation of international law. In addition, major shipping companies have signaled caution about resuming transits through the Strait in the current environment.

Sanctions relief could also prove to be a difficult issue to manage in the upcoming negotiations given President Trump has limited repeal authority for the most punitive measures. Many of the US sanctions originate in Congress, and the Iran Nuclear Agreement Review Act gives the legislature oversight on any deal reached.

We anticipate significant congressional push back to any White House effort to vacate the sanctions after what has transpired over the past six weeks.

Hence, Iran may have to live with the current non-enforcement regime rather than a full repeal that would pave the way for a reintegration into Western financial markets.

Importantly for energy markets, the continuing sanctions status quo would make it exceedingly difficult for a number of shipping companies to pay the sanctioned IRGC transit fees. In this limited sanctions relief situation, the IRGC may be doubly incentivized to secure higher oil prices to fund reconstruction and rearmament efforts.

Above all, we think the mechanics of reopening the Strait will be exceedingly messy, with Iran potentially having a vote on nearly every barrel that exits the waterway until Gulf countries can build more alternative access routes.

Fed Minutes: Oil shock raises uncertainty, but cuts still likely, Oxford Economics extract

The minutes to the mid-March FOMC meeting don’t change our view that the Federal Reserve will look past the impact of a rise in oil prices arising from the US/Israel war with Iran and lower rates twice this year to guard against a significant deterioration in labor market conditions. 

The minutes highlighted the increased uncertainty surrounding the outlook for both sides of the Fed’s dual mandate due to the war.

Fed officials think the upside risks to inflation and the downside risks to the labor market have increased.

We think concern about the labor market will prevail, but the Fed will want to be sure the shock from higher oil prices doesn’t push long-term inflation expectations higher, raising the risk the first rate cut comes later than June. 

It’s too soon to tell how the cease-fire announced Tuesday will change the outlook since we don’t know whether it will last.

Even if the cease-fire is durable, it will likely take some time for oil prices to return anywhere near pre-war levels.

Corporate news in Australia

-Pro Medicus ((PME)) secures $23m imaging contract with UMMS

-Lumonus partners with New York cancer centre to expand AI oncology platform

-Oxford Properties considers $1.5bn sale of build to rent business Indi in Australia

-ASIC investigates sale of Interprac Financial linked to Shield and First Guardian schemes

-Chalmers approves CC Capital’s $3.3bn takeover of Insignia Financial ((IFL))

-American Ocean Minerals to merge with Odyssey Marine Exploration in $1.4bn deal

-Morrison and Future Fund join bidding for Ausgrid’s $3bn Plus Es smart meter business

-Coinbase receives ASIC licence to expand in Australia

-Flight Centre Group ((FLT)) shares rise after selling -47% stake in Pedal Group

-Beetaloo Energy ((BTL)) raises over $60m as gas production approaches

-Perenti ((PRN)) secures $180m contract extension with Regis Resources ((RRL))

-Tamboran Resources ((TBN)) raises $200m amid strong oil prices

-DroneShield ((DRO)) CEO and chair exit wipes -$500m off market value

-Praetorian Aeronautics raises over $30m at valuation above $100m for AI drones

-Alibaba and China Telecom launch 10,000 chip AI data centre using domestic technology

-Aitken Mount Capital builds stake above $250m in TPG Telecom ((TPG))

On the calendar today:

-US 4Q GDP

-US Feb PCE Inflation

-US Weekly Jobless Claims

-BISALLOY STEEL GROUP LIMITED ((BIS)) ex-div 8.00c (100%)

-HORIZON OIL LIMITED ((HZN)) ex-div 1.50c

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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