Stocks have rallied sharply as it looks like the Israel-Iran ceasefire seems to be holding as Trump lands in the Netherlands to do a victory lap. But gains this morning are much more muted as investors are pausing to see what happens next. Israel and Iran seemed to be complying with a US-brokered ceasefire agreement after Trump’s firm response to reports of initial breaches by both parties. Crude has wiped out its geopolitical premium and looks like it will trade at best sideways now after plenty of technical damage. The defence theme looks like it's going to run and run and Babcock is testament to that (see below) as European signs up to spend LOTS more.

Certainly, optimism was never really all that diminished throughout the 12-day conflict so the snapback is inherently more muted. The worst of the negative impact from fears about tariffs, US immigration and the Middle East seem to be behind us, and we are seeing earnings expectations rising, whilst the Federal Reserve seems to be erring more closely towards a cut. 

US stocks surged yesterday with the S&P 500 rising 1.1% to within a whisker of its all-time high and we saw a record high for the Nasdaq 100 – no keeping good stocks down I guess. The semiconductors did very well though Apple was down on a strong day for the rest of the index. Tesla fell over 2% after Monday’s dealer-hedging rally as European sales slump once more. Nvidia rose and within a whisker of its all-time high at $153. Netflix, JPMorgan, and Microsoft reached all-time highs with Netflix increasing 88%, JPMorgan rising 40%, and Microsoft up 7% over 12 months. More on companies below. 

The FTSE 100 traded up a third of one percent early on Wednesday after a flat session yesterday. The evaporation of oil’s geopolitical risk premium over the last couple of days has dealt a blow to the UK blue chips due to Shell and BP weightings but overall the market looks robust enough. Babcock surged to the top of the FTSE on a very strong preliminary results update and bullish sounding CEO comments...comes as Nato summit sees UK and European nations come together for what Dave Lockwood calls a “new era” for defence. BAE Systems and Rolls-Royce are both trading firmer as investors continue to buy this trend which seems to have significant structural tailwinds. Other than that miners picked up some bid to help lift the index higher, whilst we have some weakness in financials and some of the bond proxies like Utilities and other defensive names such as Imperial Brands and Diageo. 

Fed chair Powell stuck to his wait-and-see rhetoric on monetary policy but he was drawn into saying “could see inflation come in not as strong as expected.” “Lower inflation, weaker labor could mean earlier cut.” 

US Treasury yields slipped with the two-year benchmark closing at its lowest level since early May at 3.82%, down four basis points, and following through lower still to 3.79% overnight. Fed Chair Powell’s arguably more dovish comments on cutting rates seemed to have prompted the move. The 10-year treasury yield benchmark likewise closed at an almost-two-month low 4.30%. European yields are not following suit though as Germany said it would raise bond issuance by €19 billion in the third quarter as it’s set for €500 billion stimulus over the next five years. 

On the fiscal side – the Welfare Reform rebellion is something to pay heed to in the UK with more than 120 Labour MPs signed up to an effort to block the bill. If it fails it will show Labour cannot take even tougher decisions and ultimately gilt markets will react and we could see a fiscal crisis building which will affect UK assets, particularly sterling.