Markets shrug at President Trump’s extension of Iran ceasefire

President Donald Trump’s announcement that the ceasefire would continue for talks with Iran eased fears that the United States was about to resume attacks, but investors largely reacted with a shrug.

Asian stocks were mixed overnight, but European markets edged higher and US stock futures edged higher.

International benchmark Brent crude oil futures and U.S. West Texas Intermediate futures were trading at $99.81 and $90.86 per barrel, respectively, as of 4:52 a.m. ET, as prices remained volatile following Trump’s announcement and the president’s insistence on keeping the Strait of Hormuz closed.

Brian Statland, chief investment officer at Equity Armor Investments, told Squawk Box Asia on Wednesday: “What the market is actually doing is overlooking what’s happening in Iran and insisting that this situation will slowly resolve itself. It may take some time, but we’re getting closer and closer to the end, not the beginning. And now we’re turning the next page.”

The Strait of Hormuz remains closed, and as long as it remains closed, oil supplies will continue to be severely restricted, thereby increasing inflationary pressures and weighing on global growth prospects.

But global stock markets have already returned to pre-war levels, with the MSCI World Index erasing a post-conflict 3.29% decline and trading nearly 2% above its closing price on March 2, the first session after the outbreak of hostilities, as investors rush to unhide geopolitical risks despite the unresolved conflict.

“The market recognizes that the worst-case scenario in this war is probably over,” Ray Farris, chief economist at Eastspring Investments, told Squawk Box Asia as investors expected Trump to find a way to extend the ceasefire.

“What we’re doing now is removing all the left-field risks, the worst risks, around $200 a barrel oil, putting the price distribution back together and refocusing on the bottom line,” Faris said.

Grace Peters, co-head of global investment strategy at JPMorgan Private Bank, told Squawk Box Europe on Wednesday that investors are “going back to thinking about fundamentals” and “the bar for re-engaging in disputes is rising.”

He added that companies will announce that the S&P 500’s price-to-earnings ratio is below its five-year average, “and clearly the catalyst for earnings season is here.”

“The combination of that valuation opportunity and earnings is clearly driving the market higher,” Peters said. “Time and again we see geopolitical strategies where one-off events don’t have a dramatic impact on markets. Recovery is generally very quick.”

“We spend a lot of time telling our clients, ‘Don’t overestimate one-off events…[and]don’t underestimate what’s going on beneath the surface.'”

Luis Costa, Citi’s global head of emerging markets strategy, told Squawk Box Europe that he sees a similar move.

“I call it residual optimism,” he said. “Before the conflict, we were in an environment where…equity return expectations were being revised upwards at a much faster pace (than in developed markets).

“I believe the same situation remains true for emerging assets in general.”

The outlook for future peace negotiations remains uncertain. Vice President Vance was scheduled to visit Pakistan for a second round of talks with Iranian officials, but the deal has been postponed after Tehran’s negotiators reportedly refused to participate.

“The fact that the ceasefire has been extended means there is no increased likelihood of fighting leading to significant damage to energy infrastructure,” Daan Struiven, co-head of global commodity research at Goldman Sachs, told CNBC’s “Squawk Box Asia.”

But “the downside is that the longer this (disruption) lasts, the more global stocks will be drained. You can’t extract stocks forever,” Struiben said.

“This is a fairly broad and very intense commodity shock. And the problem for policymakers is that they don’t have complete control over the duration of this shock,” added Strouben, who expects Brent oil prices to hover at $80 a barrel by the end of the year, about $20 more than expected in the absence of the Hormuz shock.