Asia markets temper Iran deal optimism
Asian stocks edged higher on Tuesday, following a rebound in the previous session on news of a peace deal between Iran and the United States, as investors turned their focus to various central bank decisions, including an expected interest rate hike from the Bank of Japan.
As initial excitement over the preliminary agreement between Washington and Tehran began to fade, initial trade in the region followed a familiar pattern, with markets taking a more measured tone towards developments in the Gulf.
Oil prices remained at three-month lows overnight, reflecting the cautious stance; Brent crude futures were up 51 cents, or 0.6 per cent, at US$83.74 ($A118.43) a barrel. Shippers in Asia and Europe said it could take weeks to rebuild confidence in resuming transit through the Strait of Hormuz.
While MSCI’s broadest index covering Asia-Pacific shares outside Japan increased by 0.2 percent, Korean stocks led the rise. Japan’s Nikkei 225 index retreated from a record high, losing 0.2 percent, while S&P 500 e-mini futures fell 0.1 percent.
While US President Donald Trump’s announcement Monday that he would reach a deal with Iran provided initial relief to investors, it also puts Washington on a collision course with Israel.
“While this is a significant diplomatic breakthrough that will remove a major source of market volatility, the durability of the deal is likely to be tested in the future,” Westpac analysts wrote in a research note.
“Many disputes, including the fate of Iran’s nuclear program, were left to be resolved in later negotiations.”
Stocks and bonds rose on Wall Street overnight, driven by optimism about the deal. While the S&P 500 gained 1.7 percent and the Nasdaq Composite gained 3.1 percent, the Dow Jones Industrial Average and STOXX 600 closed at record highs.
Beyond geopolitics, investors are awaiting several key central bank decisions, including the Bank of Japan, which will raise interest rates to a 31-year high on Tuesday. Vice Governor Shinichi Uchida will hold a press conference after the meeting, which Governor Kazuo Ueda will miss because he is receiving medical treatment.
“We do not expect any major changes in the bank’s assessment of current conditions,” Mitsubishi UFJ analysts wrote in a research note.
“We expect the press conference to be largely based on Governor Ueda’s speech on June 3, including the justification given by Vice Governor Uchida for the interest rate hike decision,” the note said.
“Mr. Uchida will also likely follow the governor’s words when discussing future policy decisions.”
The Reserve Bank of Australia will pause its tightening cycle at its next meeting, according to a Reuters poll of economists.
The US dollar index, which measures the dollar’s strength against a basket of six currencies, remained stable at 99.66, remaining within the tight trading channel it has been in all week.
The yield on the US 10-year Treasury bond increased by 0.8 basis points to 4.475 percent. Gold rose 0.2 per cent to US$4,313.87 ($A6,100.75).
In cryptocurrency markets, Bitcoin was down 0.3 per cent at US$66,245.97 (A$A93,686.20), while Ethereum was down 1.2 per cent at US$1,793.70 (A$A2,536.68).
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