Asia report: Markets mixed on renewed optimism for US-Iran deal

(Sharecast News) - Asia-Pacific markets mostly rose on Thursday, tracking gains on Wall Street, as optimism over a potential Middle East peace deal lifted sentiment despite continued disruption around the Strait of Hormuz.

"Asian equities staged a sharp relief rally as two pressure points eased at the same time: some vessels resumed passage through the Strait of Hormuz, and Nvidia's results kept the AI earnings story intact," said Patrick Munnelly, market strategy partner at TickMill.

"MSCI Asia ex-Japan jumped 2.7%, snapping a four-day losing streak, while South Korea's Kospi surged more than 8% and Taiwan rose almost 4% as chipmakers led the rebound."

US president Donald Trump said overnight that Washington was in the "final stages" of negotiations with Iran, according to a pool report, helping investors look past recent geopolitical volatility.

Oil prices have risen sharply during the conflict as the Trump administration blockades Iranian ports and Tehran keeps the Strait of Hormuz, one of the world's most important energy waterways, effectively closed.

Brent crude futures were last down 1.1% on ICE at $103.86 per barrel, while the NYMEX quote for West Texas Intermediate declined 0.83% to $97.44.

"The geopolitical relief is also conditional," Munnelly said.

"Brent rose 0.9% to around $106 per barrel in Asia, retracing some of its earlier decline, after three supertankers passed through Hormuz and Iran consolidated control of the waterway.

"That is better than a full blockade, but it is not normalisation."

Munnelly said supply concerns remained, especially after a US inventory drawdown, adding that Trump's message was "still coercive".

"Washington is prepared to resume attacks if Tehran does not accept a peace deal, even if it can wait a few days for the "right answers"," he said.

"Markets have therefore moved from panic to tentative relief, not from crisis to resolution."

Tokyo equities make solid gains

Japan's Nikkei 225 rose 3.14% to 61,684.14, boosted by strength in technology stocks after Nvidia's blockbuster earnings overnight reinforced optimism around artificial intelligence.

SoftBank Group surged 19.85%, Socionext gained 18.97%, and Ibiden rose 14.29%.

The broader Topix advanced 1.64% to 3,853.81.

"The semiconductor complex got two important supports," Munnelly said.

"Nvidia delivered a better-than-expected revenue forecast, with Jensen Huang seeking to reassure investors that demand for its flagship AI chips remains robust.

"The message remains that the AI infrastructure cycle has legs, even if Nvidia's own after-hours share reaction was muted."

Munnelly said the absence of China sales in Nvidia's outlook and guidance that only modestly exceeded elevated expectations had left some investors wanting more, but added: "Still, for Asian suppliers, the read-across was positive."

Japan's exports rose 14.8% year on year in April, the fastest pace since January and well ahead of Reuters expectations for 9.3% growth, driven by a 41.6% surge in semiconductor shipments.

Imports increased 9.7%, compared with forecasts for an 8.3% rise, while the trade deficit narrowed to JPY 301.9bn from JPY 643bn in March.

Exports to China rose 15.5%, while shipments to the US increased 9.5%.

Recent GDP data showed Japan's economy grew 0.5% quarter on quarter and 2.1% annualised, with net exports still a key driver, although the weak yen continues to fuel concerns over imported inflation and purchasing power.

Japan's S&P Global composite PMI fell to 51.1 in May from 52.2 in April, its lowest reading since December but still the 14th consecutive month of private-sector expansion.

"Japan's backdrop is becoming more captivating," Munnelly said.

"The Nikkei's rally was helped not only by tech enthusiasm but also by S&P Global's flash manufacturing PMI moving into expansion and exports rising 14.8% year-on-year in April."

Munnelly said external demand had held up better than expected despite the US-Iran conflict, "which could give the BoJ more confidence to hike in June if fiscal politics do not interfere".

"Dollar-yen remains around 159, with the dollar slightly firmer, but stronger domestic data and a more confident BoJ would argue for yen support if policy normalisation becomes more credible," he added.

Mainland China in the red, Seoul jumps

In China, the Shanghai Composite fell 2.04% to 4,077.28, while the Shenzhen Component dropped 2.07% to 15,247.27.

Quzhou XinAn Development lost 10.11%, Shenzhen Gongjin Electronics fell 10.01%, and Ningbo Bird declined 10%.

Hong Kong's Hang Seng Index dropped 1.03% to 25,386.52.

Baidu fell 5.74%, while New Oriental Education and Tech and Kuaishou Technology each lost more than 5%.

"China was the exception, with CSI 300 blue chips down 0.5%, underlining that the rally is still more about AI supply chains and geopolitical relief than a broad regional growth upgrade," Munnelly said.

South Korea led regional gains, with the Kospi 100 surging 9.01% to 9,538.42.

LG Electronics jumped 29.83%, Hyundai Mobis rose 25.23%, and LG Corporation gained 19.3%.

South Korea's finance ministry said the country would start 24-hour dollar-won spot trading on 6 July, as part of capital market reforms aimed at supporting economic growth.

"Samsung Electronics surged more than 8% after its union suspended industrial action following a tentative pay deal, averting a strike by nearly 48,000 workers that could have disrupted Korea's economy and global chip supply," Munnelly said.

"The caveat is that a shareholder group has challenged the legality of the deal and may seek an injunction, so this risk has not disappeared completely."

Australasian bourses in the green

Turning down under, Australia's S&P/ASX 200 climbed 1.47% to 8,621.70.

Guzman Y Gomez rose 13%, Virgin Australia Holdings gained 9.33%, and IGO advanced 7.46%.

Australia's flash S&P Global manufacturing PMI fell to 50.2 in May from 51.3, while the services PMI dropped to 47.7 from 50.7, entering contraction.

The composite PMI fell to 47.8 from 50.4, marking the second contraction in three months.

New orders recorded their steepest fall since September 2021, employment contracted for the first time since the end of 2024, and input cost inflation reached its second-highest level since August 2022.

Australia's unemployment rate also rose unexpectedly to 4.5% in April, the highest in about four and a half years, from 4.3% in March.

Employment fell by 18,600, the first decline this year, adding to expectations that the Reserve Bank of Australia could hold off on a fourth consecutive rate hike in June.

Across the Tasman Sea, New Zealand's S&P/NZX 50 rose 0.92% to 12,878.07.

Serko gained 6.9%, Eroad added 4.17%, and Mainfreight rose 4.01%.

New Zealand's goods exports rose NZD 943m, or 12%, year on year in April to NZD 8.6bn, while imports increased NZD 221m, or 3.4%, to NZD 6.7bn, leaving a monthly trade surplus of NZD 1.9bn.

Dollar mixed against regional peers

In currencies, the dollar was last up 0.02% on the yen to trade at JPY 158.95, as it gained 0.15% against the Aussie to AUD 1.4005, while it slipped 0.04% on the Kiwi to change hands at NZD 1.7035.

"The Fed minutes are the main macro restraint on the relief rally," Munnelly said.

"April's minutes confirmed that Kevin Warsh will inherit an FOMC whose hawkish instincts are broadening in response to the Middle East inflation shock."

Munnelly said markets had already adjusted, "moving from pricing broadly unchanged Fed Funds through 2026 at the April meeting to roughly a 70% chance of a 25 basis points hike by year-end," but added that the minutes validated that shift rather than challenged it.

"That matters because the energy shock is shifting from price action to logistics," he said.

"Even if oil is off the highs and some Hormuz traffic resumes, the Strait remains constrained, and there is no clean pathway to resolution."

Reporting by Josh White for Sharecast.com.