Markets rally on temporary US-Iran ceasefire, but will both sides make necessary concessions?

Global markets rallied on the news of a two-week ceasefire in the Iran war announced by US President Donald Trump overnight (SA time).

At home, the JSE’s All Share Index jumped over 5% by 11 am on Wednesday and the rand firmed over 2.3%, as Moneyweb reports.

The announcement saw oil prices fall, with hopes that negotiations during the temporary ceasefire will lead to the full opening of the Strait of Hormuz. By afternoon though, there was reverse trend starting to set in.

The rand rebound saw the currency trade at R16.37 to the dollar in early trade, a gain of 2.5% from Tuesday's close.

Stephen Grootes gets comment from John Stopford, head of Multi-Asset Income at Anglo-South African asset management business Ninety One.

The positive shift in the market is to be expected in view of the ceasefire development, says Stopford, but he cautions that the outlook still remains uncertain.

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"Certainly the language is sounding a lot more constructive and I think the market is trying to trade probabilities and risks, and tail events, and concluding that the outlook now looks a lot rosier than it did 12 or 24 hours ago. Clearly, trying to understand exactly how Trump operates and how he extricates himself from what looks to have been a fairly strategic error by the US - that is pretty difficult. But then yesterday the market was facing down the possibility of a significant escalation, and TODAY that threat at least temporarily looks to have been removed."

How optimistic should the world be about these two sides which are poles apart, being able to come to an agreement acceptable to both?

Stopford is confident there is at least potential to negotiate a deal, with the agreement on a ceasefire of some sort suggesting that both the US and Iran are potentially looking for an offramp.

And of course the stakes are high all round.

"For Trump the reasons are fairly obvious - this war is exacting a pretty heavy price on the global economy and that obviously impacts the US and it impacts his popularity as well as that of the Republicans going into the midterm elections."

"For Iran I think it's about survival, so yes, they could fight on and I think for them if survival is a victory they can say, 'we put up with what was thrown at us and came through it'."

While it's clear why both sides might want to negotiate, the question is whether they can, Stopford emphasizes.

He is confident that the Trump administration is ready to cede some ground in negotiations: "I think they want to get out of this; it's a mess that they've created and I'm not sure there's an obvious end point if they don't find an offramp soon."

The variable in the equation is third actor Israel, which is still bombing Hezbollah in Lebanon.

With clearly many issues remaining to be addressed, Stopford weighs up the chances of negotiations falling apart versus a successful outcome.

"I think there probably is enough willingness or desire to save face and achieve an outcome they can live with. For the Iranians it's likely to be having the ability to export crude and potentially have some economic claim on the Strait of Hormuz... and for that they might give up nuclear weapons."

This latest conflict has shown Tehran that being able to close the Strait has proven to be at least as effective a deterrent as having the threat of a nuclear weapon, he says.

Scroll up to the audio player to listen to Stopford's analysis