A look at the day ahead in European and global markets from Ankur Banerjee

A sparkling relief rally across assets will greet Europe after U.S. President Donald Trump and Iran agreed to a two-week ceasefire that could pave the way for the crucial Strait of Hormuz to be reopened and a broader resolution.

The deal, agreed just hours before Trump's deadline for Tehran to open the strait, represented an abrupt turnaround from earlier, when he issued an extraordinary warning that "a whole civilization will die tonight" if his demands were not met.

The agreement is contingent on the opening up of the strategic waterway that typically carries about 20% of the world's oil and gas. Iran has said it would provide safe passage through the strait for two weeks.

And so, TACO Tuesday delivered some respite to markets that have been rattled since late February by the U.S. and Israel's war with Iran, with fears of a debilitating energy price shock easing as oil sank below $100 per barrel in Asian hours.

Stocks surged in Asia, while U.S. and European futures pointed to a strong start to the session as risk appetite improved. Treasuries rallied hard as traders rekindled their wagers of possible rate cuts at the end of 2026 from the Federal Reserve, with inflation worries easing as oil prices fell.

The sobering reality that a resolution has not yet been found and a ceasefire is likely to be fragile means markets will be very sensitive to headlines and developments in the Middle East negotiations.

Investors are hoping for some semblance of normalcy around the Strait of Hormuz that could ease the chokehold on supplies of oil, gas and fertiliser over the next two weeks.

Analysts don't expect energy prices to go back to the levels they were before the war broke out due to the extensive damages to some of the energy infrastructure in the region.

That could mean inflation worries may linger and the rally in the short end bond market may be brief.

Key developments that could influence markets on Wednesday:

* Euro zone retail sales data for February * March construction PMI data for France, Germany and euro