Asian Markets Drift Lower Ahead of BOJ Decision and Iran Developments

GLOBAL MOOD: Cautiously Risk-Off
Drivers: US-Iran Nuclear Deadlock, Fed Policy Eyed

Asian markets traded cautiously on Tuesday as investors assessed ongoing geopolitical tensions in West Asia alongside a packed week of central bank meetings and major corporate earnings. Japan’s Nikkei 225 slipped around 0.4% after touching record highs recently, while Hong Kong’s Hang Seng and Australia’s ASX 200 also moved lower amid broader risk aversion.

Focus remained on the Bank of Japan policy decision later in the day, where rates are expected to remain unchanged. However, markets are increasingly watching for signals from Governor Kazuo Ueda on potential policy normalisation as inflation risks remain elevated due to higher energy prices.

Investor sentiment was also shaped by continued uncertainty around US–Iran negotiations. While Tehran submitted a fresh proposal to Washington, disagreements over Iran’s nuclear programme continue to stall progress, keeping supply disruptions through the Strait of Hormuz in focus. On the corporate front, heavyweight Japanese technology and industrial stocks came under pressure, with Advantest, SoftBank and Hitachi among major decliners.

THE BIG STORY

The US and Iran remain locked in a diplomatic stalemate after Washington signalled dissatisfaction with Tehran’s latest proposal to resolve the conflict. US President Donald Trump reportedly rejected the framework because it postponed discussions around Iran’s nuclear programme until after the broader conflict and Gulf shipping disputes are resolved. The White House continues to insist that nuclear restrictions must form the foundation of any agreement from the outset.

Iran’s proposal appears aimed at prioritising an end to hostilities and restoring shipping stability in the Gulf before addressing long-term nuclear issues. However, US officials, including Secretary of State Marco Rubio, warned that Tehran may be attempting to delay substantive commitments while maintaining strategic leverage through the Strait of Hormuz. With energy flows from the region still constrained, markets remain highly sensitive to any developments in negotiations.

Although formal face-to-face diplomacy has slowed following the cancellation of planned US talks in Islamabad, mediator Pakistan continues efforts to bridge differences between both sides. Still, the gap between Washington’s security demands and Tehran’s sequencing strategy suggests that a near-term breakthrough remains difficult, prolonging uncertainty across energy markets and the broader geopolitical landscape.

Data Spotlight
Manufacturing activity in Texas softened further in April, with the Dallas Fed business activity index slipping to -2.3, its weakest reading of the year. While labour market conditions remained broadly stable and business outlook expectations improved modestly, price pressures intensified sharply. The finished goods price index surged to 27.6, the highest since July 2022, while raw material costs also accelerated, reflecting ongoing inflationary pressures linked to higher energy and supply costs.

In contrast, Moody’s revised China’s sovereign outlook from negative to stable while maintaining its A1 rating, citing resilience in the country’s fiscal position and export competitiveness despite ongoing geopolitical and trade challenges. The agency expects China’s growth to slow only gradually over the medium term as exports remain relatively adaptive.

Takeaway:
Persistent pricing pressures continue to weigh on US manufacturing sentiment, while China’s stabilised outlook offers some support to broader global growth expectations.

WHAT HAPPENED OVERNIGHT

• US stocks edge to fresh highs as tech gains offset geopolitical concerns
  • S&P 500 rises 0.1% to record close of 7,173.9, while Nasdaq gains 0.2% to fresh high of 24,887, while Dow Jones slips 63 points as broader market performance remains mixed.
  • Investors focus on upcoming earnings from major technology companies including Apple, Microsoft, Amazon, Alphabet and Meta.
  • Reports that Iran may reopen the Strait of Hormuz provide limited optimism despite continued geopolitical tensions.
  • Nvidia jumps 4%, Micron gains 5.6%, and Alphabet advances 1.8%.
  • Apple declines 1.3%, weighing on broader sentiment.
  • Markets also await key central bank decisions led by the Federal Reserve.

• US Treasury yield hold firm as oil rally reinforces higher-for-longer outlook
  • The US Treasury benchmark 10-year yield remains around 4.32%, holding last week’s gains.
  • Markets remain cautious as US–Iran peace talks stay stalled.
  • Donald Trump cancels plan for further Pakistan negotiations with Iran.
  • Continued Hormuz disruptions and rising oil prices fuel inflation concerns.
  • Investors increasingly price in higher-for-longer interest rates amid geopolitical risks.
  • Federal Reserve widely expected to keep rates unchanged this week.
  • Focus also on potential leadership transition from Jerome Powell to Kevin Warsh.

• US Dollar eases as markets weigh diplomacy and Fed outlook
  • The US dollar index slips 0.18% to 98.45 as investors monitor stalled US–Iran negotiations.
  • Markets were cautious ahead of major central bank meetings, including expected final Fed meeting under Jerome Powell.
  • Pakistan intensifies mediation efforts to revive US–Iran talks.
  • Iran proposes delaying nuclear discussions until broader conflict and Hormuz issues are resolved.
  • Donald Trump continues to prioritise nuclear disarmament in negotiations.
  • Dollar remains supported by geopolitical uncertainty despite softer session.

• Oil climbs to two-week highs as stalled talks keep supply concerns elevated
  • Brent crude rose 2.8% to $108.23 per barrel, highest close since April 7, while WTI gained 2.1% to $96.37, strongest close since April 13.
  • Oil extends rally as US–Iran peace talks remain stalled.
  • Limited shipments through Strait of Hormuz continue to tighten global supply outlook.
  • Brent posts sixth straight daily gain, longest winning streak since March 2025.
  • Markets maintain elevated geopolitical risk premium amid ongoing maritime disruptions.

Day’s Ledger*

Economic Data

• Japan Unemployment Rate
• ECB Consumer Inflation Expectations 
• India Industrial Production 
• India Manufacturing Production 

Corporate Actions

• Jan-Mar Earnings: AWL Agri, Bandhan Bank, Canara HSBC, Castrol India, Ceat, Dalmia Bharat, Emmvee Photovoltaic, Eternal, Five-Star Business, Garden Reach, Go Digit, IFCI, Leela Palaces, Maruti Suzuki, Motherson Sumi, Piramal Pharma, REC, Sapphire Foods, Star Health
• AVG Logistics board to consider fund raising
• Jattashankar Industries board to consider fund raising
• Ratnaveer Precision board to consider fund raising

Policy

• BoJ Interest Rate Decision
• BoJ Governor Ueda Speech

Tickers to Watch

• HDFC, Axis, RBL cut staff in FY26 as tech, automation boost productivity
• Lack of growth visibility at Organon could cap Sun Pharma's gains
• L&T Realty expands development portfolio with NCR land acquisition
• Piramal Finance Q4FY26 net profit jumps nearly 5x on exceptional gains
• Bajaj Housing Finance Q4 results: Profit rises 14%, margins under pressure
• AU Small Finance Bank Q4FY26 results: Net profit rises 65% to ₹8.32 billion
• SBI Card Q4 net profit rises 14% to ₹6.09 billion, total income at ₹51.87 billion

Must Read

• Productivity gains must offset energy shocks from West Asia: CEA Nageswaran
• India-New Zealand trade pact cuts fruit tariffs, boosts exports and visas
• RBI raises threshold to ₹500 crore for 150% risk weight on unrated loans
• India to become second nation with commercial fast breeder reactor: Singh
• RBI rejects banks' demand for more time to adopt expected credit loss model
• Iran proposes reopening Hormuz if US lifts blockade, ends war, pushes nuclear talks to later phase: Report

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day

Foreign Money Is Not Ignoring India, It Is Screening It Out

India has always attracted foreign capital on a familiar promise. Scale, growth, and a macro story that compared well enough against every other emerging market to keep the allocations coming.
That no longer holds.

The investors India is pitching are running a different system entirely. They are not comparing growth rates. There is more going on here. 

(*Compiled from various media sources)