Asia report: Markets mixed on US-Iran developments, PBoC hold

(Sharecast News) - Asia-Pacific markets closed mixed on Monday as investors assessed the latest developments in US-Iran negotiations and looked ahead to inflation data closely watched by the Federal Reserve.

"Markets are welcoming the US-Iran 60-day peace roadmap and lower oil, but the rally is not built on full conviction," said Patrick Munnelly, market strategy partner at TickMill.

"Hormuz risks have compressed, not disappeared.

"China's domestic demand problem is worsening, the Fed is being repriced toward further tightening, and UK political uncertainty is adding pressure to gilts."

A key test for markets this week will be Thursday's release of May's personal consumption expenditures price index, the Fed's preferred inflation gauge.

Core PCE, which excludes volatile food and energy prices, is expected to rise from April, according to economists polled by FactSet.

Following last week's hawkish Fed meeting, expectations for a US interest rate increase have been pulled forward to as soon as October, leaving investors focused on any inflation reading that could signal the central bank may soon begin raising rates.

Munnelly said Asian equities had started the week on a firmer footing as lower oil and signs of renewed US-Iran diplomatic progress supported risk appetite.

"The MSCI Asia Pacific index rose around 0.6%, helped by a more than 1.5% gain in Asian technology shares," he said.

"AI enthusiasm remains the key equity impulse, allowing the region to look through some of the uncertainty still surrounding the Strait of Hormuz."

Oil prices were mixed after Brent turned negative on reports that mediators Qatar and Pakistan said US and Iranian officials had agreed on a roadmap to reach a final deal within 60 days.

Brent crude futures were last down 1.69% on ICE at $79.21 per barrel, while the NYMEX quote for West Texas Intermediate rose 0.52% to $77.00.

"Oil remains the main macro swing factor," Munnelly said.

"Brent fell around 1.7% to $79.20 per barrel, and at one stage traded below $79, after reports of a US-Iran roadmap for a final peace agreement within 60 days."

Munnelly said the move reflected a further compression of the geopolitical risk premium attached to disruption around the Strait of Hormuz, but cautioned that the situation was "not clean".

"President Trump has also threatened renewed military action, Tehran has hinted at re-closing the Strait, and shipping activity remains difficult to read," he said.

"The latest reports suggest traffic has slowed, and Iran may be considering a new oversight mechanism for the waterway, possibly including fees for shipping."

"That means the market is not pricing peace; it is pricing a lower probability of the worst-case scenario," he added.

Equity markets mixed as PBoC stands pat on rates

Japan's Nikkei 225 rose 1.55% to 72,353.96, while the broader Topix gained 1.24% to 4,095.05.

Fujikura surged 19.38%, J. Front Retailing climbed 15.9%, and Toppan Holdings added 11.43%.

In China, the Shanghai Composite advanced 1.78% to 4,163.10, while the Shenzhen Component rose 2.13% to 16,372.50.

Shenzhen Heungkong Holding gained 10.06%, while Shanghai Chuangli Group and Shanghai DZH each rose 10.05%.

The People's Bank of China kept its key lending rates at record lows for a 13th consecutive month in June, as expected, reflecting caution over the fallout from the Middle East conflict despite signs of slowing domestic momentum.

The one-year loan prime rate, a benchmark for most corporate and household borrowing, was held at 3.0%, while the five-year LPR, a reference for mortgages, remained at 3.5%.

The decision came as consumer and producer price pressures persisted amid higher energy prices and supply-chain disruption linked to the conflict.

Retail sales unexpectedly fell in May for the first time since December 2022, while industrial output growth accelerated.

Yuan loans rebounded in May after contracting in April, although growth was slower than a year earlier, and housing prices continued to decline.

Munnelly said China remained the main drag within Asia, with domestic demand still the central concern.

"Recent consumption data disappointed, property remains a structural overhang, and investors are increasingly questioning whether export resilience is enough to offset weak household confidence," he said.

"This matters for the global growth narrative. Lower oil helps consumers and firms, but it does not solve China's internal balance-sheet problem."

"If Chinese consumption keeps weakening, the global recovery becomes more dependent on US demand, AI capital expenditure and export momentum," he added.

"That is not a particularly balanced foundation, especially with the Fed turning more hawkish."

Hong Kong's Hang Seng Index fell 0.65% to 23,768.52.

Geely Automobile Holdings dropped 6.13%, Longfor Properties lost 5.98%, and Laopu Gold declined 5.15%.

South Korea's Kospi 100 rose 1.41% to 11,634.41.

SK Square jumped 10.67%, LG Electronics gained 7.57%, and Samsung C&T added 5.8%.

Korean Air fell 3.22%, however, after reportedly saying integration costs for its Asiana unit could reach KRW 1trn.

The airline said at an investor relations session that estimated costs could range from KRW 900bn to KRW 1trn, while annual merger synergies are projected at around KRW 300bn, Yonhap reported.

Korean Air expects those synergies to offset the expense as early as the end of 2028 and is targeting annual revenue of KRW 23trn as it seeks to become one of the world's top 10 airlines.

It aims to integrate Asiana by 17 December, after parent Hanjin Group bought a 64% stake in the carrier in December 2024.

Australia's S&P/ASX 200 slipped 0.14% to 8,816.10.

Wisetech Global tumbled 18.44%, Tuas lost 7.42%, and PLS Group fell 5.95%.

Across the Tasman Sea, New Zealand's S&P/NZX 50 declined 0.37% to 13,446.05.

KMD Brands fell 5%, Air New Zealand lost 4.21%, and SkyCity Entertainment Group dropped 3.45%.

Dollar makes gains on regional peers

In currencies, the dollar was last up 0.29% on the yen to trade at JPY 161.77, as it gained 0.23% against the Aussie to AUD 1.4294, and advanced 0.26% on the Kiwi to change hands at NZD 1.7473.

Reporting by Josh White for Sharecast.com.