US, Iran agree to cease fire, outlook remains 'uncertain'

The ceasefire agreement between the US and Iran, confirmed by both parties, has seen an immediate market reaction with oil prices dipping below US$100 for the first time since the US launched its attacks.

The agreement arrived a day after an ultimatum, issued by US President Donald Trump, threatening to wipe out Iran's critical infrastructure should it fail to reopen the Strait of Hormuz by the deadline.

Commenting, Ten Cap chief investment officer Jason Todd said the ceasefire builds on the "significant positive developments" in other aspects of the conflict such as back-channel diplomacy, elective and regional powers intervening in a positive way.

"Today's extension of the prior ceasefire which now involves further conditionality around opening the Strait is just another continuation of these developments and the gradual creep higher in the equity market (outside of today's rally) is indicative of this," Todd said.

"We think incremental developments around the Iran conflict will continue to be treated as positive for the market but the ASX200 which fell 9% peak to trough has already recovered 7% of this decline and given there are still risks associated with the flow of oil, we have probably seen a lot of the rebound simply as a result of a decline in the risk premium and uncertainty."

He believes there will be a wave of earnings downgrades in the coming weeks but shouldn't vary too much away from the average stock that is down about 15%.

However, Betashares chief economist David Bassanese said, despite Trump's ultimatum on Iran, the market reaction was more "muted" than previously seen, adding the pattern is becoming familiar with the "boy who cried wolf", exacerbated by the TACO principle - the concept that "Trump Always Chickens Out".

"Yet while it may be tempting for investors to look through Trump's threats - the ultimate endgame remains very uncertain," Bassanese said.

"Trump is likely still looking for a face-saving exit, but Iran does not want to oblige so easily. One thing is certain: events in Iran will remain centre-stage for investors for at least the next two weeks and uncertainty will continue to buffet markets.

"At this stage, moreover, Iran appears to remain intransient to threats. And given Trump's repeated backdowns, these threats are starting to ring hollow. Indeed, it's notable that market reaction to Trump's latest ultimatum was more muted than seen previously."

Meanwhile, deVere Group chief executive Nigel Green said a relief rally of this magnitude reflects how stretched sentiment had become.

"Investors were bracing for escalation that could have choked off a fifth of global oil supply. Remove even part of that threat and capital flows back into equities at speed," he said.

"Consumer discretionary will also benefit. Lower oil feeds through to gasoline prices, which supports spending.

"Airlines, travel, and retail are also going to be immediate winners from cheaper fuel and improved sentiment."