Risk sentiment received a boost from progress in US-Iran negotiations, yet a new round of US military strikes tempered stock market gains. Brent crude rebounded, the US dollar edged higher, while gold and silver prices faced downward pressure.
Trading in the Asia-Pacific region was mixed on Tuesday. The MSCI Asia Pacific Index rose 0.5% overall. South Korean stocks, resuming trade after a holiday, posted a catch-up rally to hit a record high. Japanese equities gave up earlier gains to close slightly lower, while Australian shares and Euro Stoxx 50 futures declined.
According to reports, the US military conducted strikes on Monday night against missile launch sites in southern Iran and vessels attempting to lay mines. This action tempered earlier optimistic expectations for a provisional US-Iran agreement to reopen the Strait of Hormuz.
The US Central Command characterized the operation as "defensive strikes," stating the goal was to protect US forces stationed in the region.
Japanese stocks retreated from their highs, and other Asia-Pacific markets came under pressure. The Nikkei 225 index slipped approximately 0.18%, while the Topix index fell about 0.36%.
Australia's S&P/ASX 200 index declined between 0.17% and 0.6% after opening. Euro Stoxx 50 index futures also dropped roughly 0.3%.
In contrast, South Korean stocks staged a strong catch-up rally post-holiday. The KOSPI index opened 2.8% higher and extended gains to 3.1%, touching an intraday record high of 8,131.15. The small-cap KOSDAQ index also rose about 2.12%.
Tuesday's robust performance in South Korea was largely driven by this catch-up effect. Markets were closed on Monday for a public holiday in South Korea, while global equities broadly advanced that day.
At that time, market expectations for an imminent breakthrough in US-Iran talks were at their peak, boosting the MSCI Asia Pacific Index and US equity futures. Upon returning to the market on Tuesday, South Korean investors priced in these missed gains.
Previous reports indicated that the US and Iran had reached consensus on a framework for a memorandum of understanding. Key elements reportedly included a 60-day ceasefire extension, mine clearance and reopening of the Strait of Hormuz, and an Iranian commitment not to pursue nuclear weapons.
Officials cited by news outlets suggested the framework agreement was currently "95% complete."
Brent crude oil rebounded from Monday's steep drop of over 7%, rising about 2% on Tuesday to around $98 per barrel.
WTI crude futures, however, fell sharply by approximately 5% to around $92 per barrel. This divergence in price action highlights the market's high degree of uncertainty regarding the geopolitical situation.
Abbas Keshvani, Asia Macro Strategist at RBC in Singapore, commented:
"Given previous disappointments in negotiations, the market will remain cautious. However, if talks yield substantive progress, it could further pressure energy prices and inflation expectations, leading to lower yields."
Simultaneously, pressures on global oil supply remain significant. UBS noted last Friday that supply tightness in the global oil market is intensifying due to the continued blockage of the Strait of Hormuz.
According to the bank's data, observed global oil inventories fell by a combined 246 million barrels in March and April. Cumulative production losses could exceed 1 billion barrels by the end of May. UBS views the market as being in a state of "significant under-supply."
US Treasury yields declined, the dollar strengthened, and precious metals weakened.
As the US market resumed cash trading after a holiday, US Treasuries rallied across the curve. The yield on the 10-year Treasury note fell by up to 6 basis points to 4.50%, reflecting cooling inflation and interest rate expectations driven by optimism over the potential US-Iran deal.
Japan's 40-year government bond yield also fell by 5 basis points to 4.095%.
The US dollar strengthened modestly by 0.1% against a basket of G10 currencies, with the Bloomberg Dollar Spot Index posting a slight gain.
Gold erased its early session gains, turning lower by about 0.8% to trade near $4,533 per ounce.
Spot silver plunged 2.5% to $76.11.
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