(May 25): Asian stocks climbed and crude oil fell after US officials signalled that a deal with Iran to reopen the Strait of Hormuz and restore oil flows may be near. The dollar weakened.
MSCI’s regional equities gauge climbed 1.2%, with Japan’s Nikkei index jumping more than 3% to a record. Brent dropped over 4% to about US$99.25 a barrel, the lowest level in more than two weeks as an agreement will help resume the flow of energy through the vital Middle East artery.
Cheaper oil prices and lower inflation expectations helped lift Treasury futures, with cash trading closed Monday due to a US holiday. Markets in Hong Kong and London are also shut for public holidays. Government bond yields in Japan, Australia and New Zealand also declined.
Futures contracts for the S&P 500 rose 0.7%, after the underlying gauge climbed for eight straight weeks in the longest winning run since 2023. The dollar weakened against all of its Group-of-10 peers. Non-interest-bearing assets such as gold and silver climbed as lower inflation increases scope for cutting interest rates.
Senior US officials said Sunday that the US and Iran were nearing a deal that would reopen the Strait of Hormuz, though negotiations over key language were continuing and final approval from both sides could still take several days. However, Iran’s Tasnim news agency cautioned that the draft agreement could yet collapse because the US is obstructing some key clauses, including Tehran’s demand that its assets be unfrozen.
The improvement in risk sentiment follows weeks of stalemate between the US and Iran after several previous efforts to strike a deal. Global equities have since surged to record highs on optimism that Middle East tensions may ease and on renewed enthusiasm for the AI trade, while elevated oil prices and higher inflation pushed bond yields to multiyear highs.
See also: Tech leads gain in Asian stocks as oil climbs
“The market has been in that mode of looking beyond Iran war for a month or so,” Allspring Portfolio Manager Alison Shimada said on Bloomberg TV. “I am interested in positioning for what goes on beyond the lower price of oil, because I think both sides do want some kind of negotiated end to the war.”
While the US and Iran closed in on a deal, President Donald Trump said he won’t “rush” into an agreement.
The US and Iran have developed a memorandum of understanding framework that extends the ceasefire 60 days as the two sides reach a final deal to permanently end the war, the Washington Post reported. In the meantime, the Strait of Hormuz will be demined and reopened, the report said.
See also: Stocks rise on best Asian tech rally in six weeks
“I think markets are cautiously optimistic on updates on the Middle East, hence a bit of risk-on,” said Nick Twidale, chief market analyst at AT Global Markets. “Trump has already jumped from ‘deal imminent’ to ‘I’m in no rush’ this weekend. So I think it’s 50/50 again on this deal, although obviously a positive that they are negotiating.”
Traders remain focused on inflation. Later this week, US Personal Consumption Expenditures data and inflation readings across Europe will offer clues on price pressures and the direction of interest rates.
Traders have fully priced in a Federal Reserve rate hike by year-end, underscoring expectations that the US central bank chair Kevin Warsh will need to act swiftly against inflation.
Warsh, who has promised the biggest shakeup in decades at the US central bank, was sworn into office Friday. Trump stressed that he wants Warsh to independently lead the Fed, as he looked to downplay investor concern that he would pressure the new central bank chief on policy decisions.
Strategists expect global bond yields to remain elevated even if a US-Iran deal eases oil-driven inflation pressures. Investors are also grappling with concerns that already large public debt burdens will continue to grow, while the capital demands of the AI investment boom are adding further strain to global markets.
Elsewhere, China launched an unprecedented campaign against illegal cross-border trading to stem capital outflows, threatening severe penalties against popular brokers and ordering non-compliant accounts to be liquidated within two years.
The pushback came in a quick burst after the onshore markets closed Friday when eight regulators issued a joint statement vowing a campaign against these trades, sending US-listed Chinese stocks tumbling.
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Meanwhile, Monday’s drop in oil came as signs emerged that ships are beginning to transit the Strait. Thirty-three vessels, including oil tankers, container ships and other commercial craft, sailed through the Strait of Hormuz over 24 hours after obtaining authorisation from the Islamic Revolutionary Guard Corps Navy.
“While any reopening of Hormuz would be positive for global oil flows, the fluid nature of the negotiations and the unresolved differences suggest oil price volatility could persist for some time yet,” ANZ Bank strategists including David Croy wrote in a note to clients.
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.7% as of 10.53am Tokyo time
- Japan’s Topix rose 1.4%
- Australia’s S&P/ASX 200 rose 0.4%
- The Shanghai Composite rose 0.4%
- Euro Stoxx 50 futures rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.3% to US$1.1640
- The Japanese yen rose 0.2% to 158.86 per dollar
- The offshore yuan rose 0.2% to 6.7862 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to US$77,028.38
- Ether rose 0.4% to US$2,099.62
Bonds
- Japan’s 10-year yield declined 4.5 basis points to 2.715%
- Australia’s 10-year yield declined five basis points to 4.87%
Commodities
- West Texas Intermediate crude fell 4.4% to US$92.34 a barrel
- Spot gold rose 1.2% to US$4,565.17 an ounce
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