Asian equity markets showed mixed direction on Thursday as investors remained cautious amid rapidly changing developments in the Middle East, with the dollar maintaining strength against major currencies.
Iran indicated it would weigh a U.S. proposal aimed at ending the Gulf conflict, a 15-point ceasefire plan that Tehran had earlier brushed aside. The comments arrived as markets absorbed fresh signals about the prospects for diplomacy in a conflict that has shaken energy flows and market expectations.
Trading in Asia was patchy in early sessions. Japan’s Nikkei rose 0.6% while South Korean shares fell 1.2%. MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.23% lower and was on track for a 8.7% decline for the month, the index’s largest monthly drop since October 2022.
The dollar remained firm close to recent peaks and was positioned for a 2% monthly gain, reinforcing its role as the markets’ preferred safe haven during periods of heightened uncertainty.
Market participants reacted to comments that suggested some willingness from Tehran to enter talks if its conditions were satisfied. The United States had submitted a 15-point ceasefire proposal to Iran, a plan that Iranian officials initially rejected.
"While the headline flow points to a more constructive tone, markets remain unsure which signals to trust and act upon," Chris Weston, head of research at Pepperstone, said. "Price action suggests participants expect further twists and turns, even as the probability of a negotiated outcome edges higher."
The conflict, which began with joint U.S.-Israeli strikes on Iran in late February, has effectively shut the Strait of Hormuz, a key maritime chokepoint for global energy shipments that normally accounts for about a fifth of global oil and liquefied natural gas flows. That disruption has contributed to a sharp rise in energy prices.
Brent crude futures traded at $103.35 per barrel, up 1% on the day and set for a 42% jump over the month. The move pushed crude prices above the $100-per-barrel mark and reinforced concerns about an inflationary ripple from energy costs.
"If you look at what the U.S. wants to achieve, what Israel wants to achieve, and what Tehran wants to achieve, it will be very hard to reconcile all these points," Matthias Scheiber, senior portfolio manager and the head of the Multi Asset team at Allspring Global Investments, said. "We still think there is a case to make for structurally higher energy prices for the moment."
Rising energy costs have already affected expectations for monetary policy. Traders have pushed out any chance of a Federal Reserve rate cut this year amid renewed inflation worries tied to oil gains. While bets on additional U.S. rate hikes briefly drew attention, those expectations have been scaled back since.
European Central Bank President Christine Lagarde signaled policymakers could consider raising interest rates in the euro zone if the Middle East war pushed inflation higher for a sustained period. "If the shock gives rise to a large though not-too-persistent overshoot of our target, some measured adjustment of policy could be warranted," Lagarde said in Frankfurt.
Currency moves were relatively contained. The euro traded near $1.1562 and sterling bought $1.3358. The Japanese yen hovered at 159.43 per dollar, remaining close to the 160 level that market participants watch as a possible trigger for intervention by authorities.
In commodities, gold was 0.66% higher at $4,537 per ounce on the day. However, the metal has largely sold off this month and was on course for a 14% drop in the month, the steepest monthly fall since October 2008.
What are the best investment opportunities in 2026? The original article included promotional text describing an institutional-grade data product, noting that improved data can help identify investment ideas. That section argued that tools such as InvestingPro+ combine data with AI-powered insights to aid decision-making, and invited readers to explore investment opportunities. This summary does not add or alter those claims; it reflects the promotional content as it appeared in the source material.