Asian share indices rose on Friday while the U.S. dollar lingered near its strongest levels in roughly six weeks and crude oil underwent sharp intraday moves as markets digested cautious optimism around U.S.-Iran negotiations. Traders remain wary about the possibility that the Strait of Hormuz - a vital conduit for global energy shipments - could be effectively shut, a scenario that has already pushed oil prices higher and altered expectations for interest-rate paths worldwide because of inflationary pressures.
U.S. Secretary of State Marco Rubio said there had been "some good signs" in discussions aimed at ending the nearly three month old war in the Middle East, but he added that substantive differences endure over Tehran's uranium reserves and control of the waterway.
Market breadth in Asia registered modest gains. MSCI's broadest index of Asia-Pacific shares outside Japan was up about 0.3%, positioning the region for a small weekly increase. Japan's benchmark rallied more strongly, with the Nikkei rising 2% on the day. Futures markets showed incremental gains elsewhere - U.S. stock futures were around 0.2% higher while European futures advanced roughly 0.8%.
Chris Weston, head of research at Pepperstone, noted that the flow of news appears to be gradually evolving toward developments that markets can price with greater conviction, though he cautioned that overall confidence remains limited. He said it increasingly feels as though the news flow is trending toward something tangible - a view tempered by still-low confidence levels.
Oil moved higher in early trade after a sharp drop, illustrating how conflicting reports about the talks are leaving investors uncertain. Brent crude futures climbed about 2% to $104.71 a barrel in early action, but remained on track for a roughly 6% decline over the week. U.S. West Texas Intermediate futures were up approximately 1.66% at $98.01.
Market participants warned that if energy disruptions continue or expand as the conflict persists, that would feed into global inflation and prompt traders to price in further rate increases across developed and emerging markets. "We’re seeing an unusually strong linkage between oil prices and global rates, reflecting how broad-based and borderless this shock has become," said Mitch Reznick, Head of Fixed Income at Federated Hermes. He added that what began as a change in inflation expectations now appears to be contributing to realised inflation, reinforcing the idea that central banks may have to maintain tighter policy for longer to restore price stability.
Higher yields in sovereign bond markets have supported the dollar, which is also drawing safe-haven demand. The euro traded around $1.1614 in early trade, close to a six-week low reached on Thursday, and the currency was set for about a 1% decline on the month. The dollar index stood near 99.247 against a basket of currencies. The Japanese yen was quoted at roughly 159.11 per U.S. dollar.
Domestic data from Japan showed that core inflation slowed to a four-year low in April, a development that complicates the Bank of Japan's potential path toward raising rates.
Summary
Asian equities edged up while the dollar held near a six-week high. Oil prices experienced volatile moves as markets parsed mixed signs from U.S.-Iran talks; concerns over the Strait of Hormuz and the inflationary impact of energy supply disruptions continue to influence expectations for global interest rates.
Key points
- Risk assets were supported by incremental hopes for progress in U.S.-Iran negotiations, though key disputes remain over uranium stockpiles and maritime controls - sectors affected: energy, defense, shipping.
- Oil prices showed sharp intra-session swings - Brent rose to $104.71 a barrel but was still on course for a weekly decline - the energy sector remains a focal point for inflation and rate expectations.
- Safe-haven flows and rising government bond yields have underpinned the dollar, pressuring the euro and affecting currency-sensitive sectors such as exporters and importers in developed markets.
Risks and uncertainties
- Potential closure of the Strait of Hormuz remains a central market worry, with implications for global energy supplies and related price volatility - high impact on energy and transportation sectors.
- Prolonged or worsening energy disruptions could push realised inflation higher, prompting central banks to keep policy tighter for longer - risk to fixed income and interest-rate sensitive sectors.
- Negotiations remain fragile and differences persist on core issues, leaving market sentiment vulnerable to abrupt reversals as new information emerges - affects equities, commodities, and FX markets.