Investors Look Through Iran Tensions as Asian Equities Extend Rally

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By Richard Fargose

June 3, 2026 at 1:26 AM IST

GLOBAL MOOD: Cautiously Risk-on
Drivers: Escalating West Asia Tensions, Hawkish Fed Commentary

Asia-Pacific markets reflected a broadly risk-on mood on Wednesday, with investors pushing equities higher despite renewed geopolitical tensions in West Asia and Eastern Europe. Japan’s Nikkei reached a fresh record high, signalling that investors remained focused on resilient growth expectations and the belief that a wider regional conflict can still be avoided.

Markets appeared encouraged by signs that diplomatic channels between Washington and Tehran have not completely collapsed, even as military exchanges continued and concerns persisted over security in the Strait of Hormuz, a key artery for global oil shipments. The absence of major disruptions to energy flows helped limit fears of an immediate supply shock.

However, sentiment remained cautious beneath the surface. Escalating missile activity across West Asia, renewed Russian attacks on Ukraine and warnings from Federal Reserve officials that interest rates may need to remain higher for longer continued to temper optimism.

Overall, investors favoured risk assets, but the rally remained heavily dependent on geopolitical developments and inflation expectations.

THE BIG STORY
Hostilities across West Asia intensified on Wednesday after the US military said Iranian missile attacks targeting Bahrain, Kuwait and other regional sites were intercepted or failed mid-flight, underscoring the fragility of ceasefire talks between Washington and Tehran. US Central Command said several Iranian ballistic missiles malfunctioned, while others aimed at Bahrain and Kuwait were intercepted before impact.

The escalation came despite earlier signs of progress toward a deal to halt the conflict. While Iranian media said communications between Tehran and Washington had effectively paused, Donald Trump insisted talks were continuing through recent exchanges. The uncertainty kept fears alive that a wider regional conflict could threaten energy infrastructure and key shipping routes across West Asia.

Separately, tensions in Eastern Europe also rose as Russia launched another large-scale missile and drone attack on Ukraine, hitting cities including Kyiv and Dnipro. Ukrainian officials reported dozens of casualties, while Volodymyr Zelenskyy warned that Moscow could keep up major assaults in the coming days. The strikes followed Russian threats of “systematic” attacks on Kyiv after earlier drone strikes in Russian-controlled territory.

US monetary policy concerns added to market uncertainty. Beth Hammack warned that the Federal Reserve may need to raise rates further if inflation keeps building. She said delayed action could entrench inflation and argued policy may not yet be restrictive enough to bring it back toward the Fed’s 2% target. Together, renewed geopolitical tensions, energy supply risks and hawkish Fed rhetoric reinforced fears that inflation and market volatility could stay elevated for longer.

Data Spotlight
US labour market conditions stayed firmer than expected in April, with job openings up 731,000 to 7.618 million, the highest since November 2024 and well above forecasts. Hiring and separations eased slightly, while quits and layoffs were broadly steady, pointing to continued resilience despite higher energy prices tied to the Iran conflict. Job openings rose most in professional and business services, while finance and insurance declined. Regionally, labour demand has strengthened across most of the US, especially in the West.

Consumer confidence, however, remained weak. The RealClearMarkets/TIPP Economic Optimism Index edged lower in June and stayed below the neutral 50 mark for a tenth consecutive month, signalling persistent pessimism among US households. The six-month economic outlook component dropped to its weakest level in a year, highlighting concerns over slowing growth, inflation and broader economic uncertainty.

Meanwhile, the US logistics sector kept expanding but showed strain. The Logistics Manager’s Index eased slightly in May but stayed near its strongest since 2022. Inventory growth slowed and warehousing capacity improved marginally, yet logistics costs remained extremely high. Transportation prices hit record highs on Strait of Hormuz disruption risks, while capacity kept contracting sharply. Rising freight and inventory costs reinforced concerns that supply-chain pressures and West Asia tensions could continue feeding broader inflation.

Takeaway:
Strong labour market conditions continued supporting the US economy, but elevated logistics costs, weak consumer sentiment and ongoing supply-chain disruption risks reinforced concerns that inflation pressures could remain persistent for longer.

WHAT HAPPENED OVERNIGHT

US stocks edge higher on AI optimism, as West Asian tensions, and inflation fears weigh on sentiment
- US stocks ended slightly higher on Tuesday: the Dow rose 0.45%, the S&P 500 added 0.13%, and the Nasdaq gained 0.03%.
- The Russell 2000 outperformed large caps, helped by continued AI enthusiasm.
- The Philadelphia SE Semiconductor Index jumped 5.9%, while the Software & Services Index fell 3.3% on AI disruption worries.
- US-Iran talks on the Strait of Hormuz grew more complex as Israel kept striking Lebanon, hurting risk appetite.
- Cleveland Fed President Beth Hammack said rates may need to rise if inflation stays high.
- Strong results from HPE and Alphabet's funding plans boosted confidence in AI infrastructure.
- HPE jumped 19.5% after pulling forward its long-term targets by two years.
- Alphabet plans to raise $80 billion for AI infrastructure, including backing from Berkshire Hathaway, but the stock fell 3.9%.
- Marvell surged 32.5% after Jensen Huang called it the next "trillion-dollar company" at Computex; Nvidia had invested $2 billion in March.

US Treasury yields rose as strong economic data reinforced hawkish fed expectations
- The US 10-year Treasury yield moved above 4.45%, reversing part of the decline seen in the previous week.
- Stronger-than-expected US economic data reinforced expectations of restrictive Federal Reserve policy.
- JOLTS data showed job openings rose to their highest level in more than a year during April.
- Labour market conditions remained resilient alongside muted jobless claims.
- US manufacturing activity also exceeded expectations in May, according to the ISM Manufacturing PMI.
- Persistent price pressures within the manufacturing sector reinforced inflation concerns.
- Rate futures continued to price in the possibility of a Federal Reserve rate hike later this year.
- Markets maintained a hawkish outlook despite new Fed Chair Kevin Warsh previously signalling support for lower interest rates.

US dollar steadied as markets tracked west asia developments and fed expectations
- The US dollar index traded flat to slightly lower around 99.1.
- A modest pullback in oil prices eased some inflation-related support for the greenback.
- Market sentiment nevertheless remained highly sensitive to developments in West Asia.
- Donald Trump said Israel and Hezbollah had agreed to halt attacks against each other in Lebanon.
- Trump also said discussions between the US and Iran were continuing.
- Reports that Iran was considering a full closure of the Strait of Hormuz had previously boosted oil prices and borrowing costs.
- Investors shifted focus toward upcoming US labour market data, including the monthly jobs report, for further signals on Federal Reserve policy under new Fed Chair Kevin Warsh.

Oil hits a one-week high as Hormuz stays shut and US-Iran talks stall
- Brent crude rose 1.1% to $96.00 a barrel, while WTI gained 1.7% to $93.76, the highest close since 26 May.
- Iran is reviewing a US proposal to halt the conflict, but talks with Washington have stalled for days despite Trump saying negotiations continue.
- Hormuz remains mostly shut, disrupting about a fifth of global oil and LNG flows and pushing prices up 50% or more.
- Marco Rubio said Iran may discuss parts of its nuclear programme once deemed off-limits but warned that no final deal is assured.
- Israel kept striking southern Lebanon despite Trump urging Netanyahu to avoid hitting Beirut and escalating tensions further.
- Ritterbusch said a meaningful reopening of Hormuz looks no closer, as mixed US-Iran signals keep oil trading volatile.
- The IEA warned oil inventories could hit critical levels ahead of peak summer demand if draws continue.
- Analysts estimate a 4.0-million-barrel draw for the week ended 29 May, which would mark six straight weeks of declines.

Day’s Ledger*

Economic Data

India May S&P Global Services PMI
US May S&P Services PMI
US April Factory Orders

Corporate Actions

Indiabulls board to consider fund raising options
Ideaforge Technology board to consider fund raising options
Skipper board to consider fund raising options

Policy

RBI MPC 3-day Meeting Starts
US Fed Beige Book
Fed Vice Chair for Supervision Barr Speaks

Tickers to Watch

CANARA BANK approved a capital raising plan of up to ₹85 billion through bond issuances in FY27.
CONCORD BIOTECH received US FDA approval for its Mycophenolate Mofetil ANDA used for organ rejection prophylaxis, targeting an estimated US market of $30 million.
INFOSYS expanded its partnership with DNB Bank ASA to strengthen financial crime and compliance operations.
INTERGLOBE AVIATION will discontinue Manchester flights from August 31 and return one of its six Boeing 787-9
Dreamliners to Norse Atlantic amid a challenging cost and operating environment.
JOHN COCKERILL INDIA secured an order worth about ₹13 billion from JSW Vijayanagar Metallics for two annealing and coating lines.
MANKIND PHARMA acquired the remaining 10% stake in Upakarma, making it a wholly owned subsidiary.
NHPC informed that government exercised the oversubscription option in the OFS, increasing the total offer size to a 6% stake, or 603 million shares.
VEDANTA clarified that Enforcement Directorate officials visited certain offices of VEDANTA and HINDUSTAN ZINC; the company said it is fully cooperating with the ongoing proceedings.

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(*Compiled from various media sources)