Asian equity markets experienced a significant surge on Thursday, reaching unprecedented levels as the U.S. dollar weakened and oil prices faced substantial declines. This optimistic trend among traders was fueled by the potential for a peace agreement in the Middle East, although uncertainties surrounding the vital Strait of Hormuz continue to persist.
After a lengthy holiday, Japan’s Nikkei index returned to the market, surpassing the 62,000 mark for the first time, benefiting from a strong rally driven by advancements in artificial intelligence. This momentum also propelled stock indices in South Korea and Taiwan to new record highs.
The MSCI index, which tracks a wide range of Asia-Pacific shares outside Japan, climbed by 1%, achieving another record peak. Thus far this week, the index has risen by 7%.
According to Kyle Rodda, a senior financial analyst at Capital.com, the recent market trends are justifiable given the potential for a peace deal. “However, we have witnessed similar scenarios in the past where the situation can quickly change. If discussions continue to make progress, Asian markets are likely to maintain their upward trajectory,” he noted.
Iran announced that it is considering a peace proposal that, if accepted, would formally conclude the ongoing conflict while leaving significant U.S. demands unresolved, including the suspension of Iran’s nuclear activities and the reopening of the Strait of Hormuz, which has been closed and contributed to rising oil prices.
The anticipation of a potential resolution to the conflict, which began in late February, led to a nearly 8% drop in oil prices on Wednesday. Early in Thursday’s Asian session, Brent crude traded slightly higher at $102.11 per barrel. Nevertheless, oil prices remain approximately 40% above their levels prior to the conflict, with 10-year Treasury yields also about 40 basis points higher, highlighting ongoing challenges for the global economy due to elevated energy prices and inflationary pressures.
Analysts from OCBC commented that even if the Strait reopens soon, oil prices are expected to remain high and decrease slowly due to damage to energy infrastructure and increased stockpiling for precautionary measures. Federal Reserve officials expressed concerns that the conflict could lead to a prolonged inflationary shock, driven by persistent high oil prices and emerging issues within global supply chains.
In foreign exchange markets, the euro retained its overnight gains of approximately 0.5%, trading at around $1.1747. The British pound was valued at $1.3591 after a 0.4% increase on Wednesday. The dollar index, which gauges the U.S. currency against six other currencies, stood at 98.032.
The Japanese yen has drawn attention following recent fluctuations that sparked speculation regarding potential intervention by Tokyo to support the struggling currency. The yen was last quoted at 156.29 per dollar, remaining relatively stable, after reaching a 10-week high of 155 in the previous session.
OCBC analysts highlighted that the crucial question remains whether Japan’s Ministry of Finance will continue its efforts to support the yen or if it has already utilized sufficient resources. “Intervention by itself is unlikely to alter the overall trend unless it is supported by stronger policy measures, such as a more aggressive monetary policy by the Bank of Japan or better alignment with external factors like decreasing oil prices and U.S. yields,” they remarked, maintaining a year-end target of 155 for the yen.
While soaring oil prices initially disrupted global markets in March, a fragile ceasefire and the potential for a peace agreement have led to a risk-on rally since April, further boosted by robust earnings from technology firms.
In the latest market developments, both the S&P 500 and Nasdaq reached all-time closing highs, buoyed by impressive earnings reports. Companies listed on the S&P 500 are expected to report their strongest profit growth in over four years.
Investors are now looking ahead to the non-farm payrolls report due on Friday, which is anticipated to show an increase of 62,000 jobs in April, following a rebound of 178,000 in March, according to a Reuters survey of economists.
