Asian share markets traded cautiously on Tuesday as bond markets recovered from a sharp selloff that followed remarks by U.S. President Donald Trump and signs of easing oil prices. Trump said he had paused a planned attack on Iran to give space for negotiations after Tehran sent a fresh peace proposal to Washington, and he added there was a "very good chance" an agreement could be reached to prevent Iran from obtaining a nuclear weapon.
The president's comments helped send oil lower, which in turn tempered a steep decline in global bonds. Brent crude futures fell to $109.41 a barrel, down more than 2%, while U.S. crude eased 1.3% to $107.25 per barrel. Both contracts remain more than 50% above their pre-war levels.
Despite the reprieve in energy prices, investor caution persisted after markets were shaken by a weekend drone strike in the United Arab Emirates. "We’ve seen a lot of back and forth already," said Fabien Yip, a market analyst at IG. "Until we actually see real action happening (in the Strait of Hormuz), whereby ships are passing through safely and we see a material rebound in the numbers of traffic going through in the Strait, I think the market in general is shrugging off the commentary from either side."
Regional equity performance was mixed. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.22%, while Japan’s Nikkei advanced roughly 1%. South Korea’s Kospi declined about 2%.
In U.S. futures, Nasdaq futures reversed earlier gains to trade 0.07% lower and S&P 500 futures slipped 0.03%. Across Europe, futures pointed higher with EUROSTOXX 50 futures up around 0.4%, and FTSE and DAX futures each edging up roughly 0.3% to 0.4%.
The market will face a concentrated test of the so-called artificial intelligence trade when Nvidia reports quarterly results on Wednesday. Expectations are high for the world's most valuable company, and some investors see its report as a barometer for broader market sentiment tied to AI. "Nvidia’s earnings are the ultimate test for a stock market that is not only trading at record highs, but one that also had a breathtaking bounce off of the March lows, as Nvidia is the market’s shorthand for everything AI and this market’s gains have been driven in large part by AI over the past few years," said Richard Reyle, chief investment officer at Questar Capital Partners.
Bond selloff subsides
The retreat in oil helped to check a severe selloff in global bonds, though concerns linger about the potential for a persistent inflation shock stemming from the Iran conflict. The yield on the benchmark 10-year U.S. Treasury note eased from a more than one-year high to 4.5974% in early Asian trade, while the two-year yield dipped slightly to 4.0564%.
Japanese government bond yields, which surged to record highs in the prior session, moved lower across the curve as well. Over the weekend and into the new week, G7 finance ministers discussed rising worries about public debt levels and volatility in bond markets when they met in Paris.
Markets continue to price in additional rate increases from major central banks this year, on the view that policymakers may need to tighten policy to counter a resurgence in inflation driven by higher-for-longer energy prices. In a note cited in markets, Goldman Sachs analysts said: "While the economic rationale for pricing persistently higher inflation over the coming years on the current supply shock is weak particularly given the labor market backdrop, a return of supply-side volatility and the sanguine growth tone in markets both argue for more risk premium through the inflation curve."
Currencies and commodities
The dollar has been supported by safe-haven flows since the outbreak of the war, and was trading about 0.1% stronger at 159 yen, a level that prompted traders to watch for potential intervention from Tokyo to support the currency. The euro was down 0.1% at $1.1643, while sterling fell about 0.1% to $1.3419.
Spot gold eased marginally to $4,562.50 an ounce, pressured in part by rising bond yields earlier in the recent selloff.
Overall, markets remain attuned to geopolitical developments and the trajectory of energy prices, while central bank policy expectations and corporate earnings - led by the forthcoming Nvidia report - are set to influence near-term market direction.