Asian stock markets posted gains on Thursday as semiconductor equities recovered from recent selling pressure, although the broader market rally faced headwinds from rising energy costs. A resumption of hostilities in the Gulf region drove crude prices higher, sparking renewed concerns about inflation that subsequently weighed on global bond markets and influenced interest rate expectations.
Crude oil prices extended their advance for a third consecutive session. The upward trajectory followed statements from U.S. President Donald Trump declaring that an interim agreement with Iran intended to halt the conflict was "over." Subsequently, the U.S. military conducted fresh strikes on Iran for a second day, with the objective of opening the Strait of Hormuz. Despite the escalation, Trump later indicated an expectation that a return to a full-scale war was unlikely, which helped to partially alleviate market anxieties.
In the commodity markets, Brent crude futures increased by 0.8% to settle at $78.65 per barrel. This gain contributed to a 9% weekly surge, pushing prices above the $80 per barrel threshold for the first time since June 22. The rise in energy costs had immediate repercussions across financial markets, particularly in the bond sector.
Global bond markets faced downward pressure as the oil price spike intensified inflationary concerns. Consequently, market pricing for U.S. Federal Reserve policy shifted, with traders increasing bets that the central bank would need to raise interest rates this year to combat inflation. Futures data on Fed funds indicated expectations for a policy tightening of 38 basis points for the remainder of the year, reversing a decline seen just one week prior.
Equity markets in the Asia-Pacific region responded to these developments with varied performance. The broadest MSCI index tracking shares outside of Japan rose by 0.8%. In Japan, the Nikkei index climbed 2.3%, ending a three-day losing streak. South Korea’s KOSPI index posted a significant jump of 3.8%, fueled by strong gains in the technology sector. Samsung shares rose 3.6%, while SK Hynix surged 7.5% as investors resumed buying into chipmakers following a recent period of selling.
In the United States, Wall Street indices showed tentative recovery. The Nasdaq composite managed a marginal gain of 0.2% after initially falling in response to Trump's comments. A key driver for the tech sector's performance was chip giant Nvidia, whose shares rallied 3.6%. This movement was prompted by media reports suggesting that China plans to permit its leading artificial intelligence firms to purchase a limited quantity of the company's H200 chips.
The turmoil in energy markets also drove a deepening rout in global bonds. In Asia, the yield on 10-year Japanese government bonds rose by 1.5 basis points to 2.880%, marking the highest level since September 1996. Similarly, Australia’s 10-year government bond yields increased by 4 basis points to 4.924%, reaching the highest point since early June.
U.S. Treasury yields continued their upward trajectory. The benchmark 10-year yield climbed another 2 basis points to 4.5852% on Thursday, following a 4 basis point rise overnight. For the week, yields were up 10 basis points. Currency markets exhibited a relatively muted reaction. The dollar lost 0.2% against the yen, trading at 162.38 yen, which remained close to 40-year peaks of 162.84 yen as market participants remain cautious about potential Japanese intervention.
Other major currencies saw modest movements. The euro increased by 0.1% to $1.1428, while sterling rose by 0.1% to $1.3401, settling just below a three-week peak of $1.341. Gold prices remained flat at $4,079 an ounce.
Financial markets displayed caution amid the fluid geopolitical situation. Chris Weston, head of research at Pepperstone, noted that markets currently appear biased toward the view that the conflict will ultimately de-escalate and that negotiations will resume around the Memorandum of Understanding. However, he emphasized that traders remain open-minded due to the highly fluid nature of the situation and the exceptional difficulty in timing expectations.
Macroeconomic data from the U.S. added to the complex backdrop. Minutes released by the Federal Reserve revealed concern among policymakers regarding mounting inflation. Several participants indicated that there was already a case to raise borrowing costs, although the committee ultimately agreed to hold rates steady last month.