Asian Stocks Reach Record Levels Amid Optimism for Ending Iran War

SadaNews - Asian stocks rose to record levels, driven by a surge in Japanese stocks as they returned from holiday, amidst growing optimism that the United States and Iran are nearing an agreement to end the conflict that has shaken markets and clouded economic prospects.

The "Nikkei 225" index jumped by 4.4% to its highest level during the day, helping the broader "MSCI Asia-Pacific" index rise by 0.7%, amid speculation that easing tensions in the Middle East would lower oil prices and support economic growth.

Asia's gains followed the closure of U.S. indices on Wall Street at record levels on Wednesday, as traders increased their bets on stocks, with about 80% of companies in the "S&P 500" index reporting better-than-expected earnings in the current season.

Contributing to the sentiment, Brent crude dropped nearly 8% on Wednesday, triggering a surge in U.S. and global bonds. The crude partially regained some of those gains on Thursday, trading around $102 per barrel.

The decline in energy prices alleviated concerns about inflation and led to reduced bets on interest rate hikes by the Federal Reserve. A Bloomberg index measuring the dollar traded near pre-war levels.

Attention also turned to the yen, which stabilized around 156.30 per dollar early Thursday, after rising in the previous session amid speculation that officials were intervening in the market.

Optimism About De-escalation Increases Risk Appetite

The movements reflected optimism about easing tensions in the Middle East, while negotiations between the United States and Iran are ongoing regarding a new proposal to end the conflict that has lasted nearly 10 weeks.

The reduction in tensions in recent weeks has helped global stocks erase losses driven by the war and surge to new highs, as falling oil prices eased inflation fears and reignited interest in AI trading.

Michael Brown at Pepperstone said, "We are still on a path toward de-escalation and toward the end of the conflict." He added, "While this path is clearly difficult, as long as we stick to it, and as long as the direction of movement is more optimistic, risk appetite should remain supported."

Washington has proposed a one-page memorandum of understanding that would gradually reopen the Strait of Hormuz and lift the U.S. blockade on Iranian ports, according to a source familiar with the matter. The source said detailed negotiations regarding the Iranian nuclear program would come later in the process, adding that nothing has been agreed upon yet.

The step came after Trump suspended a short-term U.S. mission to ensure safe passage for commercial vessels through the Strait of Hormuz, a vital waterway for oil and gas. A response from Iran is awaited.

Adding to the urgency is a summit scheduled for next week with Chinese President Xi Jinping, which had already been postponed in the early days of the conflict due to the situation in the Middle East.

Trump stated that the war has a "very good chance of ending" and that it is possible this could happen before his trip to Beijing next week, according to an interview with PBS News Hour. He called on China’s chief diplomat to reopen Hormuz quickly in a meeting with his Iranian counterpart.

JP Morgan Sees Room for Increased Equity Exposure

JP Morgan strategists, including Nikolaos Panigirtzoglou, wrote in a note: "We believe that institutional investors, especially macro fund managers, have room to increase their equity exposures from here."

Investors also examined the latest economic data ahead of Friday's jobs report. U.S. companies added jobs in April at the fastest pace in more than a year, providing the latest evidence of a stable labor market.

Alberto Musalem, president of the Federal Reserve Bank of St. Louis, noted uncertainty regarding the future path of the economy and monetary policy, but sees that risks are rising more for inflation compared to employment.

His counterpart in Chicago, Austan Goolsbee, warned against automatically cutting interest rates in response to faster productivity growth, as this phenomenon can sometimes push prices higher.