Peace dividend sends London’s risers deep into an unlikely corner of the market Proactive uses images sourced from Shutterstock
Donald Trump’s announcement of a peace deal to end the US-Iran war late on Sunday sent a diverse collection of stocks surging on Monday, as markets priced in lower oil, reopened shipping lanes and the prospect of a return to something approaching normality for global trade and travel.
The most obvious winners were the airlines and their suppliers, with Wizz Air Holdings PLC (AIM:WIZZ), the budget carrier with heavy exposure to Central and Eastern European routes, including Middle East-facing corridors, surging 9.07%, while British Airways owner International Consolidated Airlines Group SA (LSE:IAG) rose 4.56%.
Rolls-Royce Holdings PLC (LSE:RR.), which supplies jet engines to a wide range of commercial carriers and had been punished as air travel sentiment soured during the conflict, climbed 4.97%, its shares benefiting from the simple logic that more flights mean more engine hours and more maintenance revenue.
Airport food and beverage operator SSP Group plc (LSE:SSPG), which runs branded food outlets in airports and rail stations across the world, advanced 5.30%, with investor confidence in passenger throughput recovering sharply as Middle East route restrictions looked set to ease.
The mining sector provided the most counterintuitive element of the peace dividend story.
Gold and silver producers Hochschild Mining and Pan African Resources rose 6.34% and 5.32% respectively, even though conventional wisdom might suggest a resolution to a geopolitical crisis would suppress safe-haven demand and therefore depress precious metals prices.
The logic runs differently in this instance: throughout the conflict, the closure of the Strait of Hormuz sent oil prices surging, stoking inflation fears and keeping interest rate expectations elevated, a toxic combination for gold since higher rates lift the opportunity cost of holding a non-yielding asset.
With Hormuz now set to reopen and oil prices falling sharply, the inflation overhang on rate expectations eases, making precious metals more attractive, not less.
The same logic extended to copper giant Antofagasta and silver and gold producer Fresnillo, up 5.17% and 4.16% respectively on the FTSE 100, and gold miner Endeavour Mining, which added 4.20%.