Asian markets rally as iran conflict hints at de-escalation
A cautious optimism swept through Asian markets Friday, extending a sixth consecutive week of gains as investors responded to signs the Iran conflict might be winding down. The MSCI Asia Pacific Index climbed 0.3%, a mixed bag of gains and losses, but with a notable outperformance from tech stocks fueled by reports suggesting a push for a ceasefire.
Geopolitical risk eases – for now
The catalyst? A report from Axios indicating negotiations between the U.S., Iran, and regional mediators are underway to forge a 45-day ceasefire – a potential turning point in the escalating tensions. Coupled with increased tanker traffic through the Strait of Hormuz, the news provided a much-needed boost to sentiment, despite increasingly aggressive threats from President Trump to target Iranian power grids. The markets, as always, are looking for a way out of the worst-case scenarios – namely, a complete disruption of oil supplies.
“Asian markets, in particular, tend to react swiftly to any indication that the worst-case scenarios can be avoided,” noted Tareck Horchani, head of sales trading at Maybank Securities. “Hence, we’re seeing a modest recovery, especially in sectors like semiconductors and cyclical industries.” But the specter of Trump's threats—promising to “destroy everything” there if a deal isn’t reached by Tuesday—hangs heavy over proceedings.
Fed rate cut expectations & energy price volatility
Traders remain on edge, keenly aware that the Iran situation has cast a shadow over economic prospects and stoked inflation fears, leading to renewed expectations of interest rate cuts by the Federal Reserve. The focus remains laser-sharp on energy prices and the potential for the Strait of Hormuz to be choked off—a vital artery for Middle Eastern oil flows. Trump's escalating rhetoric, delivered via Axios, underscores the fragility of the situation.
Homin Lee, a strategist at Lombard Odier in Singapore, put it bluntly: “Predicting the future remains quite tricky for investors. Attention will be focused on military actions on both sides of the Persian Gulf and whether maritime transits through the Strait of Hormuz improve despite these attacks.” Mark Cranfield, Markets Live strategist, echoed this caution, adding that the truce negotiations “demonstrate significant investor interest in de-escalation, driving risk aversion. A rejection of those hopes by Trump in his Monday address would swiftly reverse this optimism.”
Safe havens retreat, key markets closed
The shift away from perceived safety is evident. Gold prices plunged over 1%, falling to approximately $2,330 per ounce, while silver shed 1.5% to around $72 per ounce. Precious metals have slumped more than 12% since the conflict erupted late last month, largely due to surging energy prices fueling inflation worries and diminishing the appeal of non-yielding assets.
Significant portions of Asia-Pacific, including China, Hong Kong, and Australia, remain shuttered for a public holiday, further limiting liquidity. Several European markets are also closed. While Oman has signaled its willingness to mediate and ensure free passage through the critical strait, just 16 vessels have traversed it since Saturday, a fraction of the usual volume.
Tech gains, crypto surge – but caution prevails
Despite the overall cautious optimism, certain sectors are showing strength. Futures for the S&P 500 rose 0.2%, and the Topix index in Japan gained 0.6%. Cryptocurrencies saw a boost as well, with Bitcoin climbing 2% to $69,020 and Ether rising 2.9% to $2,127. The euro held steady at $1.1520, while the Japanese yen remained at 159.59 per dollar, and the offshore yuan traded at 6.8858 per dollar.
Ultimately, the market's next move hinges on Trump's Monday press conference. His past threats of escalation, even just two weeks ago, have proven to be a volatile factor. As Charu Chanana, Saxo Capital Markets strategist, observed,