There are “numerous questions” that remain unanswered over how the Iran conflict will evolve over the coming weeks, warns Derek Halpenny, head of research for global markets at Japanese bank MUFG.

Addressing this morning’s risk-on rally, Halpenny says:

Firstly, could this be part of a big ruse for an actual escalation in the conflict by the US? Sounds unlikely but who really knows with President Trump. Secondly, the conflict will continue for two to three weeks – that’s a considerable period of time in which developments could easily change the intention of the US to de-escalate so we can’t take this commitment wholeheartedly just yet. Finally, and perhaps most importantly, what about the Strait of Hormuz? As the WSJ reported yesterday, it looks like the US is going to leave and hope that the exit of the US will encourage Iran to reopen the key chokepoint for global energy. That could prove correct but it is no certainty that Iran will play it like that.

The US is just one player in this conflict. There is reportedly a growing conviction in the Middle East – in particular in Saudi Arabia and the UAE – that the Iranian regime should not remain in place. Israel’s war in Lebanon looks likely to continue which could well be reason for Iran not to de-escalate as quickly or as easily as perhaps the US currently assumes. If this conflict ends in the way being suggested it will only embolden the Iranian regime which will inevitably claim victory.

There are big gains across Europe’s stock markets this morning.

In Frankfurt, Germany’s DAX share index has jumped by 2.8% in early trading.

France’s CAC 40 is 2.3% higher, while Italy’s FTSE Mib has gained 2.6% and Spain’s IBEX has risen by 2.7%.

This leaves the UK’s FTSE 100 slightly lagging, with its jump of 1.8% this morning.

Richard Hunter, head of markets at interactive investor, says:

“A coiled spring was unleashed as investors saw clear light at the end of the tunnel for an end to the hostilities in the Middle East.

With a mountain of cash reportedly on the sidelines, investors had been waiting for a trigger to put the money to work. This was provided by the US President confirming a timeline of two to three weeks before the US retreats, leaving others to restore trading through the Strait of Hormuz. At the same time, the Iranian President was said to be open to ending the war, subject to certain guarantees.

Airlines, who have experienced more than a month of disruption since the Iran war started, are among the top risers in London today.

As well as IAG (British Airways’ parent company) which is now up 5.5%, Wizz Air (+6.9%) and easyJet (+5.2%) are also rallying.

The bond market is also reacting to hopes of peace in the Middle East soon.

Government bonds are rallying, which is pushing down the yield (or interest rate) on UK debt.

Ten-year UK gilt yields have fallen by 12 basis points (0.12 percentage points) to 4.8% this morning, the lowest since 19 March.

Shorter-dated two-year gilt yields are dropping too – down 14bps to 4.27%.

This is excellent news for chancellor Rachel Reeves, whose budget fiscal headroom had been eroded by the surge in gilt yields since the Iran war began (as bond investors had anticipated an inflation surge).

There are only six fallers on the FTSE 100 share index this morning.

Two of them are the energy giants – Shell (-1.5%) and BP (-2.3%), tracking the Brent crude price lower.

Britain’s stock market has hit a two-week high at the start of trading, as hopes the Iran war could end soon fuels optimism in the markets.

The FTSE 100 index of blue-chip shares has surged by 1.8% in early trading, gaining 184 points to 10,360.

Engineering firm Rolls-Royce (+8.3%) are leading the risers; an end to the war would benefit its jet engine servicing operations.

Copper-producer Antofagasta (+7.2%) and airline group IAG (+5.6%) are also rising sharply.

Hope that the Iran war might end soon have now pushed Brent crude below the $100 a barrel mark.

The international benchmark is down over 15% since yesterday at $99.78 a barrel, its lowest level in a week.

Last night, Brent closed at $118.35 a barrel, before Donald Trump’s claim that the conflict will end in ‘two or three weeks’ sparked today’s relief rally in markets.

City traders are slashing their bets on UK interest rate rises this year, as hope builds that an end to the Iran war might possibly be close.

The money markets are now pricing in around 41 basis points (0.41 percentage points) of increases to UK Bank rate by the end of 2026. That means that two quarter-point rises are no longer fully priced in.

Yesterday, the market was anticipating 66bps of rate rises by Christmas, and last week 75bs (or three quarter-point increases) were fully priced in.

Ouch! UK food inflation is forecast to hit at least 9% by the end of this year, as the cost of living crisis is reignited by the Iran war.

The Food and Drink Federation has revised its food inflation forecast upwards – triple its previous forecast.

Having previously expected food prices inflation to end the year around 3%, the FDF now fear it will have risen to between 9% and 10%.

They say

This is a fast-moving situation, and our update is based on assumptions that the Straits of Hormuz opens within 2-3 weeks and energy production in the Middle East returns to normal within a year

As one of the UK’s energy intensive and most globally connected sectors, food and drink manufacturing is unusually exposed to these shocks, with cost pressures on multiple fronts hitting the industry at once

As well as the surge in energy costs, food producers also face a spike in the cost of fertilisers.

Last month, the boss of one of the world’s largest fertiliser companies – Yara International – has said global food supplies could be badly damaged this year if the Iran war becomes an extended conflict.

An end to the war in the Middle East, and a drop in energy prices, would be a relief to UK households as we enter Awful August.

UK households face a bill surge this month, in which the annual cost of essentials, including council tax and water, will increase by more than £200.

The price jumps caused by the Iran war will add to that financial hit. More here:

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

After its biggest monthly gain ever, the oil price has dropped sharply on hopes of de-escalation in the Middle East.

Brent crude has dropped around 13% since last night, back down to $103 a barrel, as investors welcome signs from Washington DC that the Iran war might end soon.

Yesterday, US president Donald Trump said the United States could end its military attacks on Iran within two to three weeks, declaring:

Now we’re finishing the job. I think in two weeks or maybe a few days longer, we’ll do the job. We want to knock out everything they’ve got.

Trump is expected to address the US at 9pm ET tonight (2am BST tomorrow morning).

Asia-Pacific markets have started April in good heart too.

China’s CSI 300 index is up 1.5%, Japan’s Nikkei has surged 4.9% and South Korea’s KOSPI has leapt by 9.5%.

That follows gains in New York last night, where the Dow Jones Industrial Average jumped by 2.5%.

Investors are also cheered by reports that Iranian President Masoud Pezeshkian has said Iran is willing to end the war but only if there are guarantees “to prevent the recurrence of aggression”.

Chris Weston, head of research at Pepperstone, says the “more constructive commentary” from both the US and Iranian camps is encouraging traders to move bac into riskier assets:

We saw reports breaking in Asia yesterday from the WSJ that Trump was willing to end the war without taking the Straits of Hormuz. In fact, he encouraged other international peers to take the strait without US involvement. There are different ways to interpret that, both positive and negative, but the market has taken this as a small step towards appeasing and compelling the Iranian camp.

The Iranians have also come out with more constructive rhetoric for risk, signalling the necessary will to end the war. They have outlined their conditions, some of which were already known. But the combination of the narrative, driven through headlines, has certainly seen risk come back into play.

The agenda

• 9am BST: Eurozone manufacturing PMI for March

• 9.30am BST: UK manufacturing PMI for March

• 10am BST: eurozone unemployment data

• 10.30am BST: Bank of England releases financial stability report

• 2.45pm BST: US manufacturing PMI for March