Asian Markets Cautiously Risk-On as Trump Delays Iran Strike

GLOBAL MOOD: Cautiously Risk-On
Drivers: Iran Diplomacy Hopes, Inflation Fears

Asian markets showed a cautious risk-on tone on Tuesday as investors welcomed signs of a possible de-escalation in the US-Iran conflict after President Donald Trump delayed a planned military strike on Tehran. The pause in military action eased immediate fears of a wider regional war and helped oil prices retreat modestly from recent highs, supporting broader market sentiment.

However, gains remained uneven as investors continued to assess the longer-term risks from elevated energy prices, rising bond yields and persistent geopolitical uncertainty. Japan outperformed after stronger-than-expected first-quarter GDP data reinforced confidence in domestic economic resilience, while South Korean equities declined sharply amid regional and geopolitical concerns.

Markets also tracked the upcoming Putin-Xi summit in Beijing, which underscored shifting global alliances amid the ongoing Russia-Ukraine conflict. Despite improving diplomatic signals in West Asia, investors remained wary that prolonged disruptions in the Strait of Hormuz could sustain inflation pressures, push global borrowing costs higher and weigh on economic growth prospects.

THE BIG STORY
US President Donald Trump said he had paused a planned military strike on Iran after Tehran submitted a new peace proposal to Washington, raising hopes for a potential agreement to limit Iran’s nuclear programme and reduce tensions in West Asia. Trump stated there was now a “very good chance” of reaching a deal, although he warned the US military remained prepared for a “full, large-scale assault” if negotiations failed. The decision reportedly followed requests from leaders in Qatar, Saudi Arabia and the UAE, who urged Washington to allow more time for diplomacy aimed at reopening the Strait of Hormuz and stabilising the region.

Despite the diplomatic opening, markets remained cautious as the prolonged conflict continued to fuel inflation concerns and pressure global bond markets. Rising oil prices linked to disruptions in the Strait of Hormuz added to fears that governments already burdened with high debt levels could face even higher borrowing costs. Bond yields across major economies continued to rise sharply, with US 30-year Treasury yields climbing above 5% and Japanese 10-year yields touching multi-decade highs.

The combination of elevated inflation, rising interest rates and increasing fiscal pressure has intensified concerns over long-term government debt sustainability across advanced economies. Investors continued demanding higher returns to compensate for inflation and geopolitical risks, particularly after years of post-pandemic borrowing, the Russia–Ukraine war and now the ongoing Iran conflict.

Data Spotlight
Japan’s economy expanded by 0.5% quarter-on-quarter in Q1 2026, beating expectations and marking its strongest growth since Q3 2024. The improvement was driven by stronger private consumption as easing inflation and stable wage growth supported household spending. Public investment also rebounded for the first time in three quarters due to higher infrastructure expenditure, while exports accelerated sharply on stronger overseas demand for automobiles and technology products. However, business investment growth slowed amid rising uncertainty linked to the Middle East conflict and concerns over the global economic outlook.

In the US, housing sentiment improved modestly, with the NAHB/Wells Fargo Housing Market Index rising to 37 in May from 34 in April, indicating slightly better builder confidence. Sales expectations and buyer traffic both improved, while fewer builders reported cutting prices compared with the previous month. Meanwhile, the New York Fed’s Services Business Activity Index improved significantly to -5.8, showing that although the services sector continued to contract, the pace of decline eased considerably. Businesses continued to report elevated input costs, persistent inflationary pressures and worsening supply availability, though expectations for conditions over the next six months improved slightly.

Takeaway:
Japan’s stronger growth highlighted resilience in Asia’s major economies, while persistent inflation and supply-side pressures in the US reinforced expectations of a prolonged restrictive monetary policy environment.

WHAT HAPPENED OVERNIGHT

• US stocks ended mixed as technology weakness offset gains in defensives
  • S&P 500 edged down 0.1%, while Nasdaq declined 0.5% amid weakness in technology shares.
  • Dow Jones rose around 160 points, supported by gains in energy, financials and consumer staples.
  • Investors continued to monitor developments in US–Iran negotiations and broader Middle East tensions.
  • Technology stocks were the weakest-performing sector during the session.
  • Seagate Technology tumbled nearly 7% after management warned new factory expansion would take too long.
  • Weak guidance from Seagate pressured broader semiconductor sentiment, with Micron Technology falling 6%.
  • Nvidia, Apple, Meta Platforms and Broadcom also closed lower.
  • Tesla fell 2.9% after concerns emerged that a planned SpaceX IPO could divert investor interest and management focus.

• US Treasury yields stayed elevated amid persistent inflation and geopolitical uncertainty
  • The US 10-year Treasury yield fluctuated around 4.6%, remaining near one-year high.
  • Markets continued to assess uncertainty surrounding a potential US–Iran agreement.
  • Reports suggested Washington discussed a temporary waiver on Iranian oil sanctions during negotiations.
  • Later reports indicated the White House viewed Iran’s revised proposal as insufficient for a final deal.
  • Elevated oil prices continued to reinforce inflation concerns and limit expectations for monetary easing.
  • Investors largely expected the Federal Reserve to keep interest rates unchanged through year-end.
  • Markets also priced in roughly a 40% probability of an additional 25 bps Fed rate hike.

• US Dollar eased as Iran negotiation hopes improved sentiment
  • The US dollar index slipped to 99, retreating from more than one-month highs reached last week.
  • Fresh signs of progress in US–Iran negotiations reduced safe-haven demand for the greenback.
  • Reports indicated Washington proposed a temporary waiver of sanctions on Iranian oil exports.
  • Separate reports suggested Tehran could consider a long-term freeze on its nuclear programme.
  • Despite diplomatic progress, the Strait of Hormuz remained largely closed, keeping energy markets under pressure.
  • Elevated oil prices continued to fuel global inflation concerns and limit central banks’ ability to ease policy.
  • Markets still expected the Federal Reserve to keep interest rates unchanged through year-end.
  • Probability of an additional 25 bps Fed rate hike remained around 40%.
  • The dollar weakened broadly, with the sharpest declines seen against the British pound.

• Oil climbed to two-week highs as supply disruption fears dominated
  • Brent crude rose 2.6% to settle at $112.10 per barrel, while WTI gained 3.1% to $108.66.
  • Both benchmarks closed at their highest levels in several weeks amid persistent supply concerns.
  • Markets remained focused on potential disruptions linked to the ongoing Iran conflict.
  • Concerns over Gulf energy flows outweighed reports that the US may waive sanctions on Iranian crude exports during negotiations.
  • Volatile trading reflected uncertainty over whether diplomatic talks could materially improve oil supply conditions.
  • Elevated oil prices continued to reinforce broader global inflation concerns and higher-for-longer interest rate expectations.

Day’s Ledger* 

Economic Data

• Japan March Industrial Production Data
  
• UK March Unemployment Data
  
• US Weekly ADP Employment Data
  
• US April Pending Home Sales Data  

Corporate Actions

• Zydus Lifesciences board to consider share buyback
• Earnings: Alembic, Automotive Axles, BASF India, Bharat Electronics, Bharat Petroleum Corporation, Borosil, Dredging Corporation of India, Godawari Power And Ispat, Gujarat State Fertilizers & Chemicals, Jayshree Tea & Industries, Karnataka Bank, Kirloskar Industries, Kopran, Mankind Pharma, PNC Infratech, PTC India, RITES, Siyaram Silk Mills, Tamilnadu PetroProducts, Trident, Zee Entertainment Enterprises, and Zydus Lifesciences,

POLICY

• US FOMC Member Waller Speaks
  
• German Buba Vice President Buch Speaks

Tickers to Watch

• ADANI GROUP stocks in focus after US Department of Justice drops criminal charges against Gautam Adani and Sagar Adani in New York securities and wire fraud case.
• EICHER MOTORS informed that Andhra Pradesh approves 215.7-acre land parcel at Tada for proposed manufacturing expansion with planned investment of up to ₹25 billion.
• GE VERNOVA T&D INDIA reports strong Jan-Mar earnings with net profit surging nearly 89% YoY on robust revenue growth and margin expansion.
• GUJARAT NARMADA VALLEY FERTILIZERS & CHEMICALS Jan-Mar net profit surges 87.7% YoY to ₹4.0 billion from ₹2.1 billion.
• HDFC LIFE shareholders approve preferential issue of 15 million shares to HDFC BANK.
• ICHER MOTORS reported that Andhra Pradesh approves 216-acre land parcel for proposed greenfield expansion; company to invest ₹25 billion.
• IIFL CAPITAL reported that FIH Mauritius Investments and HWIC Asia Fund launch open offer to acquire 100 million shares, or 26% stake, in the company.
• INDIAN OIL CORPORATION Jan-Mar net profit jumps 56.6% YoY to ₹113.8 billion from ₹72.6 billion.
• LUPIN Receives tentative US FDA approval for Revefenacin Inhalation Solution.
• VASCON ENGINEERS receives Letter of Intent worth ₹1.3 billion from RELIANCE INDUSTRIES for Jamnagar expansion project.

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