Global stock markets have seen their momentum slow after three consecutive sessions of gains exceeding 1%, as investors shift their focus to assessing the implementation prospects of the US-Iran Strait of Hormuz agreement and the policy signals from a busy week of central bank decisions.
The MSCI World Index is trading in a narrow range following its recent strong rally, US stock futures are edging lower, Brent crude has slipped below $83 per barrel, while European shares opened slightly higher. Earlier, buoyed by the signing of the agreement to reopen the Strait of Hormuz, the S&P 500 rose 1.7% and the Nasdaq 100 surged 3.1% on Monday.
However, markets in the Asia-Pacific region, particularly Japan and South Korea, continued their exuberance. Following the Bank of Japan's widely anticipated rate hike, the Nikkei 225 index broke through the 70,000-point barrier during the session, setting a new all-time high. South Korean shares closed 2.1% higher. The Reserve Bank of Australia announced it would keep interest rates on hold, its first pause this year, keeping the Australian dollar under pressure.
Saxo Markets Chief Investment Strategist Charu Chanana noted that "the low-hanging fruit in the rally has been picked," with the US-Iran peace framework allowing investors to quickly price in some of the oil price and inflation risk. "But the next leg of gains needs confirmation – not just whether the ceasefire holds, but whether the oil flow through the Hormuz can actually resume smoothly."
The Nikkei 225 index closed up 0.1% at 69,404.50 points. Japan's Topix index closed 0.2% lower at 3,991.14 points. South Korea's KOSPI index closed 2.1% higher at 8,726.60 points.
The Japanese yen was virtually unchanged at 160.31 per US dollar.
US stock index futures were mostly slightly lower, with Nasdaq futures down 0.12%.
European shares opened modestly higher. The Euro Stoxx 50 index opened up 0.35%, Germany's DAX index gained 0.2%, the UK's FTSE 100 index rose 0.1%, and France's CAC 40 index advanced 0.3%.
The yield on the 10-year US Treasury note was little changed at 4.47%.
The yield on the 10-year Japanese government bond rose 7.5 basis points to 2.650%.
Bitcoin fell 1% to $65,840.82.
WTI crude oil was flat. Brent crude fell below $83 per barrel.
Spot gold rose 0.3% to $4,323.67 per ounce.
Bank of Japan Hikes Rates as Expected, Pumps the Brakes on Quantitative Tightening
The Bank of Japan raised its policy rate to 1%, the highest level since 1995, with both decisions passed by a 7-1 vote. In its statement, the central bank explicitly warned of upside inflation risks, noting that core CPI risks exceeding the price target and that the year-on-year CPI increase could accelerate to levels "clearly above 2%." It stated that the pass-through of rising oil prices is proceeding at a "relatively fast pace" and could spread to push up consumer prices for a wide range of goods and services. The Bank also said it would continue raising the policy rate in line with developments in economic activity, prices, and financial conditions.
Concurrently, the central bank adjusted the pace of its quantitative tightening, announcing that from April 2027 it will maintain its monthly government bond purchases at around 2 trillion yen, halting further reductions and discontinuing its previous mid-term review practice. This arrangement signifies that while maintaining its rate hike path, the Bank is proactively slowing the pace of balance sheet contraction, creating a degree of internal balance in its policy orientation.
Following the Bank of Japan's decision, the Nikkei 225 index broke through 70,000 points, rising over 0.5% at one point to touch a record high; the Topix index recovered its losses to trade nearly flat. The MSCI Asia-Pacific Index, after a sluggish start, found support and rose 0.3%.
Despite the Bank of Japan's continued push for higher rates, the yen remained under pressure against the US dollar, giving up earlier gains; Japanese government bond yields jumped on the announcement. Charu Chanana pointed out that "the BoJ hike is helping the Nikkei because the decision was fully priced in," adding that "it doesn't materially change Japan's earnings story or the liquidity backdrop."
Hormuz Deal Lifts Sentiment, Global Rally Awaits Confirmation
According to a senior US official speaking on a conference call with reporters, President Trump and Vice President Vance have signed the electronic version of a memorandum of understanding with Iran. President Trump, during a meeting with French President Macron, stated that the Strait of Hormuz is "partially open" and will be "fully open" on Friday; the formal agreement is scheduled to be signed in Switzerland on Friday.
This news propelled global stocks and bonds higher on Monday, with Brent crude oil subsequently falling. However, after three days of gains, market sentiment has turned more cautious. The Strait of Hormuz handled roughly one-fifth of global oil shipments before the outbreak of war, and investors are still seeking further confirmation on actual progress in the waterway's navigation.
US stock index futures were mostly slightly lower, with Nasdaq futures down 0.12%. European shares opened modestly higher. The Euro Stoxx 50 index opened up 0.35%, Germany's DAX index gained 0.2%, the UK's FTSE 100 index rose 0.1%, and France's CAC 40 index advanced 0.3%.
Morgan Stanley significantly lowered its oil price forecasts for the coming quarters. Analyst Martijn Rats noted in a report that, while key risks remain, the interim agreement between Washington and Tehran is a significant step toward de-escalation and increased oil exports through the Hormuz. ANZ Bank economists Matthew Galt and others wrote in a report: "Markets need time to digest, Hormuz flows need time to normalize, and inventories need to be replenished. As such, we see little immediate impact on central banks' reaction functions."
Global Central Bank Decision Week: Fed's First Meeting Under the Wash Era
This week's calendar of central bank decisions is particularly packed. The US Federal Reserve will announce its policy decision on Wednesday, marking the first meeting chaired by new Chair Wash. Economists expect the Fed to keep its benchmark rate in the 3.5% to 3.75% range, with swap markets pricing in less than an 80% chance of another 25-basis-point hike by December.
BlackRock Investment Institute strategists Jean Boivin and Wei Li stated in a report that the firm is closely watching how Wash articulates the balance between growth and inflation, and any signals he may send about potential changes to the Fed's communication style, such as reducing reliance on forward guidance. "This could make Fed policy shifts a source of volatility as investors try to infer the future path from fewer clues," they wrote.
The Bank of England and the Swiss National Bank are also expected to hold rates steady this week. The European Central Bank acted last week, raising rates for the first time in nearly three years, with President Christine Lagarde warning that inflation stemming from the Iran war is spreading beyond the energy sector into broader areas.
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