Persistent tensions in the Strait of Hormuz have driven international oil prices higher for a seventh consecutive session, fueling inflation expectations and pressuring global bond markets and gold. This week, major central banks including the U.S. Federal Reserve and the European Central Bank are set to hold policy meetings, while earnings reports from tech giants will be released intensively, presenting multiple key tests for the markets.
During a visit to Russia, Iran's Foreign Minister stated that the U.S. has requested negotiations, an option currently under consideration by Tehran. Brent crude oil rose as much as 2.9% intraday to $111.32 per barrel before retreating to around $103.73, up approximately 2% for the day. WTI crude traded at $98.52 per barrel with a similar gain. Gold came under pressure from a stronger U.S. dollar, with spot prices falling 1.12% to $4,630 per ounce. The yield on the 10-year U.S. Treasury note edged up 1 basis point to 4.35%.
Meanwhile, the Bank of Japan decided by a 6-3 vote to keep its policy rate unchanged, prompting the yen to strengthen slightly by 0.2% to around 159 per U.S. dollar. The decision significantly heightened market expectations for a potential rate hike in June, with implied probability rising to over 70%. Investors are awaiting a press conference by Governor Kazuo Ueda scheduled for 3:30 PM Tokyo time.
Rising oil prices, combined with multiple risk events, weighed on investor sentiment. European indices opened lower, with the Euro Stoxx 50, Germany's DAX, the UK's FTSE 100, and France's CAC 40 each down 0.1%. The MSCI Asia Pacific Index declined 0.3%, hovering near levels seen in late February when conflict between the U.S., Israel, and Iran erupted. S&P 500 index futures dipped 0.1%, though the index remains on track for its strongest monthly performance since 2020.
Japan's Nikkei 225 closed down 1% at 59,917.46 points, while the Topix index gained 1% to finish at 3,772.19. South Korea's KOSPI rose 0.4% to close at 6,641.02.
Uncertainty Over Iran Peace Proposal Continues to Influence Oil Markets Reports indicate that Iran's proposed terms include reopening the Strait of Hormuz if the U.S. lifts its maritime blockade and ends the war, with nuclear negotiations postponed to a later date. A White House spokesperson confirmed that the proposal has been discussed with senior advisors. However, prior statements indicate a firm stance against lifting the blockade before an agreement is fully finalized, leaving significant uncertainty over whether the proposal will be accepted.
The ongoing conflict, now in its eighth week, has exerted sustained pressure on global commodity markets. Although initial hostilities weighed on equities, global stock markets have largely recovered and even reached new highs, while oil prices have remained elevated.
Super Central Bank Week: Inflation Pressures Test Forward Guidance The Federal Reserve, European Central Bank, Bank of England, and Bank of Canada are all scheduled to announce interest rate decisions this week, collectively representing about half of the global economy. Markets widely expect rates to remain unchanged, but investors are keenly watching for officials' assessments of how rising oil prices may threaten the inflation outlook.
One analyst suggested that while the tone of press conferences will emphasize a cautious "wait-and-see" approach, investors are nearing a point where they may expect clearer communication from the Fed regarding the impact of energy shocks, even if not fully detailed in this week's meetings.
It is noted that the Fed's decision on Wednesday may be the last under the current chair, with a new chair expected to take over in May. Recent developments have cleared the way for the transition. The ECB and BoE are also expected to hold rates steady on Thursday, though economists anticipate both will leave room for potential rate hikes later this year.
Tech Giants' Earnings in Focus: Can AI Momentum Sustain Gains? The market rebound has been significantly supported by renewed enthusiasm for AI-related trades. Alphabet, Microsoft, Amazon, and Meta are set to report earnings on Wednesday, followed by Apple on Thursday. Asian companies are also entering the busiest week of their earnings season, offering early clues on how the conflict has impacted corporate performance.
Some analysts suggest that Middle East tensions are unlikely to materially affect profits in the U.S. AI and tech sectors, viewing U.S. equities as a preferred safe-haven asset globally. Others note that recent gains in Asian tech stocks amid ongoing supply chain disruptions indicate investors are looking beyond near-term geopolitical risks. However, sustained outperformance relative to U.S. markets may depend on capital expenditure signals from major cloud providers in this week's earnings reports.
A warning was issued that the market's climb to record highs has largely overlooked persistent geopolitical risks, relying instead on positive earnings revisions and optimistic expectations. A disappointment in upcoming earnings from the largest companies could pose a significant risk to market momentum.
Bank of Japan Holds Rates with Divided Vote, June Hike Expectations Rise The BOJ's decision to maintain interest rates was passed with a 6-3 vote, highlighting internal disagreement and boosting expectations for a possible rate increase in June. Japanese government bond prices fluctuated following the announcement. The yen strengthened modestly as investors await further policy guidance from the upcoming press conference.
In regional equity markets, South Korean stocks advanced, with the country's overall stock market capitalization surpassing that of the UK to become the world's eighth largest.
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