A two-week US-Iran ceasefire has eased immediate fears about energy supply disruptions but analysts warn that oil prices are unlikely to fall sharply anytime soon.
Standard Chartered (SC) said the ceasefire aligns with its base case forecast of a 4-to-6-week conflict. While the pause in hostilities is welcome, the bank noted it does not eliminate downside risks. A lasting agreement is still needed to prevent a fresh round of hostilities and another spike in energy prices.
Restoring oil output to pre-conflict levels will also take time. Logistical challenges including restarting production repairing damaged infrastructure and returning shipping to full capacity mean a swift price reversal is not expected.
Manpreet Gill from SC said the bank continues to favour well-diversified portfolios with downside risk hedges such as inflation-protected bonds. In the near term SC expects US technology stocks to benefit from improving fundamentals and cheaper valuations. Asian equities along with developed market high yield and emerging market bonds are also seen as beneficiaries of lower energy prices.
On the macro front US jobs data showed improvement in both job creation and unemployment last week. Central banks including the Fed and ECB signalled a willingness to balance inflation risks against growth concerns. SC expects the Fed to hold rates in the first half of the year and resume cuts in the second half.
Within equities SC favours the US technology sector and Asian markets particularly Taiwan India and China. The tech sector's valuation premium over the S&P 500 had fallen to 2019 lows setting up a potential rebound supported by strong AI earnings and easing funding concerns.
The bottom line is that ceasefire progress is constructive for markets but a full reversal of oil price gains remains a distant prospect.