Asia-Pacific stock markets initially saw modest gains supported by AI trading enthusiasm, but rising geopolitical tensions in the Middle East reversed the upward trend and pushed oil prices higher.
According to reports, U.S. President Donald Trump stated at the White House on Monday, May 11, that Iran's response to the U.S. proposal was "foolish" and that the ceasefire agreement was "hanging by a thread," casting sudden doubt on the prospects for a truce.
During Tuesday's Asian trading session, crude oil prices rose while stock and bond markets faced pressure. Japan's Nikkei 225 index briefly rose over 1%, and the TOPIX index similarly expanded its gain to 1%. However, South Korea's KOSPI index sharply reversed, falling nearly 4% intraday after having opened 1.8% higher and completely erasing its gains.
Japanese Finance Minister Tsuyoshi Katayama held talks with U.S. Treasury Secretary Janet Yellen, discussing market conditions including exchange rates, as well as AI and critical minerals issues. Katayama stated that he would not comment on specific monetary policy tools of the Bank of Japan, putting pressure on the yen and Japanese government bonds.
**Key Asset Movements:**
* The MSCI Asia Pacific stock index fell 0.6% overall, after having risen 0.5% earlier in the session. U.S. stock index futures also declined by 0.3%. * The U.S. Dollar Index rose 0.2%. The South Korean won fell 0.7% against the dollar, underperforming other Asian emerging market currencies. * The yield on the 10-year Japanese Government Bond (JGB) rose 2 basis points to 2.54%, its highest level since 1997. The 5-year JGB yield climbed to 1.915%, setting a new record. * Spot gold fell 0.2% to $4,728.92 per ounce. Spot silver continued its overnight gains, rising 0.41% intraday. * Bitcoin fell 1% to $81,012.29, while Ethereum declined 1.3% to $2,306.78.
**Ceasefire Stalemate Leads to Divergent Asia-Pacific Market Performance**
The ongoing blockade of the Strait of Hormuz remains a core variable for commodity markets. While Trump did not explicitly state whether military strikes against Iran would resume, the negotiation deadlock has continued to dampen market expectations for a near-term reopening of the strait. Morgan Stanley stated on Monday that the oil market is in a "race against time," and if the strait blockade persists into June, oil prices could see a significant spike. Mark Haefele from UBS Global Wealth Management's Chief Investment Office noted that an agreement remains distant, risks stay elevated, and both sides still face pressure to reach a deal.
Tuesday's trading showed clear divergence across Asia-Pacific markets. Japan's Nikkei 225 rose over 1%, and the TOPIX index also expanded its gain to about 1%, before paring gains to 0.22%.
The South Korean market experienced sharp volatility. The KOSPI index plunged nearly 5% intraday, completely erasing its early 1.8% gain. Major constituents Samsung Electronics Co., Ltd. and SK Hynix turned negative intraday, with the former falling as much as 6.5% at one point.
It was noted that while the South Korean KOSPI index has led global gains this year with an over 80% increase in U.S. dollar terms, BlackRock's largest South Korea equity ETF saw a record weekly net outflow of $970 million last week. Behind the fund exodus are both passive rebalancing triggered by concentrated holdings and active profit-taking. Nomura pointed out that foreign selling is realizing floating profits from last year's AI rally, but the skew in KOSPI call options has significantly retreated, indicating that the "fear of missing out" (FOMO) sentiment is not yet exhausted.
New policy developments were noted in South Korea. Kim Yong-bum, head of the presidential policy office, proposed considering the establishment of a "citizen dividend" system, funded by excess profits generated from the AI industry. He stated that profits in the AI infrastructure era are not created solely by individual companies but are built upon decades of national industrial accumulation, and therefore, part of the gains should be returned to all citizens through institutional arrangements.
Recent strong momentum in AI trading has supported market sentiment to some extent. However, concerns among some Wall Street figures are growing. Sarah Hunt, Chief Market Strategist at Alpine Saxon Woods, expressed that the biggest concern is that while there has been some buffer against energy prices, there is debate over when this buffer will be exhausted and when it will truly become a problem. "Big Short" investor Michael Burry also issued a warning, stating that after a "parabolic" surge, the Nasdaq 100 index has reached unsustainable valuation heights and faces the risk of a sharp correction.
**Japanese Bond Market Alarms**
Pressure from oil prices is transmitting to bond markets, with government bond yields rising broadly across major global markets. The yield on the 10-year U.S. Treasury note hovered around 4.42%, after having risen 6 basis points on Monday. The yield on the 10-year Japanese Government Bond rose about 2-3 basis points to 2.54%, its highest level since 1997; the 5-year JGB yield climbed to 1.915%, a record high. The yield on the 10-year Australian government bond rose 2 basis points to 5.01%.
Japanese Finance Minister Tsuyoshi Katayama stated on Tuesday that he had held talks with U.S. Treasury Secretary Janet Yellen on exchange rates and market conditions, and they also discussed AI and critical minerals topics. He explicitly stated he would not comment on specific monetary policy tools of the Bank of Japan and denied intervening in the crude oil futures market.
The U.S. dollar strengthened, with the Dollar Index rising 0.2%. The yen fell 0.2% against the dollar to 157.57, and the euro also saw a slight decline.
Spot gold fell 0.2% to $4,728.92 per ounce. Spot silver continued its overnight gains, rising 0.41% intraday.
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