Asian Markets Down as Oil Surge, FOMC Division Weighs on Sentiment

GLOBAL MOOD: Risk-Off
Drivers: Oil Surge, Fed Divisions, Geopolitical Tensions

Asia Pacific markets traded mostly lower on Thursday as surging oil prices, persistent tensions in West Asia and a divided Federal Reserve decision dampened investor sentiment. Japan’s Nikkei 225 fell more than 1% in post-holiday trading, while the broader Topix index declined sharply as investors reacted to rising energy costs and prolonged disruptions in the Strait of Hormuz. Australia’s ASX 200 also extended losses to an eighth consecutive session, pressured by stronger inflation data that reinforced expectations of further policy tightening.

Investor caution intensified after Donald Trump stated that the US would maintain its naval blockade on Iran until a nuclear agreement is reached, reducing hopes for near-term diplomatic progress. Brent crude prices moved closer to $120 per barrel, increasing concerns around inflation and import costs across energy-dependent Asian economies such as Japan and South Korea.

Meanwhile, the Federal Reserve kept rates unchanged but revealed an unusually divided policy vote, highlighting uncertainty over the inflation outlook and the economic impact of geopolitical disruptions. Regional markets remained mixed overall, with Taiwan and Shenzhen posting modest gains while South Korea’s KOSPI, Malaysia and Japan traded weaker amid broader risk-off positioning.

THE BIG STORY
The Federal Reserve kept interest rates unchanged for a third consecutive meeting, maintaining the federal funds target range at 3.5%–3.75%, but the decision exposed unusually deep divisions within policymakers. The 8-4 vote marked the highest number of dissents since 1992, with Governor Miran backing an immediate rate cut while several others opposed language suggesting future easing. The Fed acknowledged that developments in West Asia were contributing to elevated uncertainty around inflation and growth, reinforcing the view that policymakers remained highly cautious about the economic outlook.

Fed Chair Jerome Powell also confirmed he would remain a governor after his term as chair ends, helping maintain continuity within the central bank at a sensitive moment for markets. Investors interpreted the meeting as more hawkish than expected, particularly as persistent energy price pressures reduced expectations for near-term policy easing.

At the same time, US President Donald Trump held discussions with major oil executives on how to manage the impact of a potentially prolonged naval blockade on Iran. The talks reflected growing concern over sustained disruptions to oil flows through the Strait of Hormuz and their impact on global energy markets. While diplomatic messages continued through Pakistan, negotiations remained deadlocked, increasing the risk that energy supply constraints and inflation pressures could persist for an extended period.

Data Spotlight
US crude inventories declined sharply by 6.2 million barrels in the latest week, far exceeding expectations, while gasoline and distillate stocks also recorded larger-than-expected draws. The data highlighted tight fuel markets and resilient energy demand despite elevated prices and ongoing disruptions linked to the conflict in West Asia. Refinery activity increased modestly, while net crude imports fell by nearly 2 million barrels per day.

Economic data also pointed to pockets of resilience across the broader economy. Housing starts surged 10.8% month-on-month to their highest level since December 2024, supported by gains across all major regions and stronger single-family construction. Durable goods orders rose 0.8%, led by continued strength in AI-related technology demand and machinery orders. However, building permits weakened, signalling caution ahead as higher mortgage and material costs weighed on the outlook.

Meanwhile, the US goods trade deficit widened to $87.9 billion as imports rose faster than exports. Although exports reached a record high, stronger consumer and industrial imports reflected persistent domestic demand and elevated supply needs.

Takeaway:
Strong energy demand and resilient industrial activity supported the US economy, but rising costs, widening trade imbalances and geopolitical disruptions continued to pose inflation and growth risks.

WHAT HAPPENED OVERNIGHT

• US stocks traded mixed as fed split and oil surge clouded sentiment
  • Dow Jones fell 0.57%, while S&P 500 and Nasdaq ended broadly flat after volatile trading.
  • Markets reacted to sharply higher oil prices and a divided Federal Reserve decision to keep rates unchanged.
  • Fed statement marked the most divided policy vote since 1992 amid concerns over rising energy costs from West Asia tensions.
  • Major technology earnings remained in focus, with Alphabet rising after results while Amazon, Microsoft and Meta fell in after-hours trade.
  • Robinhood dropped 13.2% after missing profit expectations.
  • Seagate surged 11.1% on strong guidance, lifting broader data-storage stocks.
  • Starbucks gained 8.5% after raising annual profit outlook.
  • Visa climbed 8.3% on stronger earnings guidance.

• US Treasury yield jumped as hawkish fed signals and oil surge lifted rate fears
  • The US benchmark 10-year yield rose around 7 bps to 4.42%, highest in about a month.
  • Federal Reserve kept rates unchanged, but split decision was viewed as hawkish.
  • Three policymakers dissented over language implying potential future rate cuts.
  • Markets increased pricing for possible rate hikes by 2027 amid persistent inflation concerns.
  • Short-term yields rose more sharply, with 2-year yield climbing above 3.95%.
  • Fed warned that the conflict in West Asia was weighing on the economic outlook.
  • Donald Trump said naval blockade on Iran would remain until nuclear agreement is reached.

• US Dollar climbed to three-week high as hawkish fed boosted demand
  • The US dollar index rose to 99.9, highest level in three weeks.
  • Greenback strengthened after Federal Reserve maintained a hawkish tone despite holding rates unchanged.
  • Three FOMC members dissented against the easing bias, signalling tougher conditions for future rate cuts.
  • Fed Chair Jerome Powell confirmed he would remain on the committee for now, reducing expectations of a dovish shift.
  • Persistent tensions in West Asia continued to support safe-haven demand for the dollar.
  • Donald Trump linked removal of Gulf tanker blockade to a nuclear agreement with Iran.

• Oil surged to multi-week highs as stalled talks deepened supply fears
  • Brent crude jumped 6.1% to settle at $118.03 per barrel, highest since March 31.
  • Prices later climbed to $120 in post-settlement trade for first time since June 2022.
  • Oil extended gains for an eighth consecutive session amid deadlocked US–Iran negotiations.
  • Markets grew increasingly concerned about prolonged supply disruptions in West Asia.
  • Larger-than-expected draw in US crude and fuel inventories added further support.
  • Geopolitical risk premium intensified as prospects for near-term diplomatic breakthrough weakened.

Day’s Ledger* 

Economic Data

• China April Manufacturing PMI
• Germany March Retail Sales
• Germany Jan-Mar GDP Data
• Eurozone Jan-Mar GDP Data
• US March PCE Price Index 

Corporate Actions

• ACC, Adani Enterprises, Adani Ports and Special Economic Zone,  Bajaj Finserv, Central Bank of India,
• Hindustan Unilever, IDBI Bank, Mazagon Dock Shipbuilders, National Aluminium Company, National Securities Depository

 Policy

• BoE Interest Rate Decision
• ECB Interest Rate Decision 

Tickers to Watch 

• ZUARI AGRO CHEMICALS received a demand notice of ₹2.96 billion from a Goa authority for water and sewerage dues.
• BAJAJ FINANCE informed that Rajiv Bajaj to step down as Non-Executive Director from the board.
• LARSEN & TOUBRO (L&T) to sell entire stake in L&T Metro Rail Hyderabad for ₹14.61 billion; unit to cease as subsidiary post completion.
• INDIAN HUME PIPE secured a Telangana government water-supply project worth ₹4.59 billion.
• BRIGADE ENTERPRISES formed a 50:50 JV with Bain Capital for a Bengaluru project with total investment of ₹22 billion.
• MPS received an income-tax demand of ₹220 million.
• LLOYDS METALS & ENERGY board to consider fundraising of up to ₹25 billion on May 5.
• EMCURE PHARMA informed that BC Investments sold 18 lakh shares at ₹1,608 each, with Norges Bank acquiring an equivalent stake. 

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 (*Compiled from various media sources)