Risk Appetite Returns on Signs of US-Iran Breakthrough

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Kagenmi

istock.com

By Richard Fargose

May 7, 2026 at 1:47 AM IST

GLOBAL MOOD: Cautiously Risk-On
Drivers: Peace Progress, Geopolitical Risks

Asia-Pacific markets reflected a risk-on mood on Thursday, with investors focusing on improving prospects for a US–Iran peace deal despite lingering geopolitical tensions. Japan led regional gains, as the Nikkei 225 surged over 5% to cross the 62,000 mark for the first time, driven by strong rallies in technology, financial and materials shares.

Investor sentiment improved after Donald Trump indicated that “Operation Epic Fury” could end if Iran accepted a proposed agreement, raising hopes for reopening the Strait of Hormuz and easing disruptions to global energy supplies. Markets interpreted the comments as a sign that diplomacy was gaining traction after weeks of military escalation.

Asian equities also drew support from easing concerns around oil supply shocks, even as tensions persisted in Lebanon and Ukraine. While geopolitical risks remain elevated, investors are increasingly pricing in the possibility of de-escalation in West Asia, supporting appetite for risk assets and cyclical sectors.

THE BIG STORY
Iran said it was reviewing a new US peace proposal, signalling possible progress toward a preliminary framework agreement aimed at ending the conflict and restoring stability to the Strait of Hormuz. Donald Trump said discussions over the past 24 hours had been constructive and that a deal was “very possible,” reinforcing optimism that diplomatic momentum was improving after weeks of military escalation.

Sources involved in the mediation effort said negotiators were close to agreeing on a one-page memorandum that could pave the way for reopening shipping routes, easing sanctions on Iran and launching broader nuclear discussions. However, major sticking points remained unresolved, including US demands related to Iran’s missile programme and regional proxy groups.

Despite improving signals around US–Iran diplomacy, geopolitical tensions remained elevated elsewhere. Benjamin Netanyahu announced an Israeli strike in Beirut targeting a Hezbollah commander, marking renewed military activity despite an existing ceasefire arrangement in Lebanon. Meanwhile, fighting between Russia and Ukraine intensified again after Kyiv accused Moscow of ignoring ceasefire proposals.

The simultaneous mix of diplomatic progress in West Asia and renewed conflict elsewhere kept global markets cautious, even as hopes for easing energy disruptions improved.

Data Spotlight
US private employers added 109,000 jobs in April, exceeding expectations and marking the strongest monthly increase since January 2025. The gains were led by the services sector, particularly education, healthcare and transport-related industries, while construction supported growth within goods-producing sectors. Smaller businesses accounted for the majority of hiring, reinforcing the Federal Reserve’s “low-hire, low-fire” labour market narrative where layoffs remain limited despite cautious recruitment trends.

Meanwhile, US crude inventories declined by 2.3 million barrels, extending the recent tightening trend in energy markets. Gasoline stocks also fell more than expected, indicating resilient fuel demand, although refinery activity eased slightly during the week. Distillate inventories declined as well, though by less than forecast.

Takeaway:
Labour market conditions remained resilient despite broader economic uncertainty, while continued declines in fuel inventories suggested energy demand stayed firm even as oil prices retreated on improving geopolitical sentiment.

WHAT HAPPENED OVERNIGHT

US stocks rallied to record highs as AI surge, peace hopes boosted sentiment
- S&P 500 climbed 1.46% while Nasdaq surged 2.03% to fresh record closes.
- Dow Jones advanced 1.24% as risk appetite strengthened across sectors.
- Optimism over a potential resolution in West Asia supported broader market sentiment.
- Advanced Micro Devices jumped nearly 19% after strong revenue guidance driven by AI chip demand.
- Intel gained 4.5%, while the semiconductor index rallied sharply.
- Nvidia rose 5.7% as AI-linked stocks extended gains.
- Corning advanced after announcing partnership with Nvidia for AI data centre connectivity products.
- Hut 8 surged 35% following a major long-term data centre lease agreement.

US Treasury yield fell as oil collapse eased inflation pressures
- The 10-year US Treasury yield declined to 4.35%, retreating from recent multi-month highs.
- Sharp fall in oil and refined product prices reduced immediate inflation concerns.
- Markets reacted positively to reports of a proposed US–Iran memorandum aimed at halting the conflict.
- Donald Trump signalled support for restoring regional energy exports if an agreement is reached.
- Earlier inflation fears had driven expectations of possible Federal Reserve rate hikes this year.
- Strong ADP employment data and elevated ISM price readings continued to support a hawkish policy backdrop.

US Dollar weakened as peace optimism reduced safe-haven demand
- The US dollar index fell to 97.9, returning to pre-war levels.
- Growing optimism over a potential US–Iran agreement pressured the greenback.
- Sharp decline in oil prices helped ease inflation concerns and reduced demand for safe-haven assets.
- Reports suggested the White House was close to a preliminary framework agreement with Iran.
- Donald Trump said the Strait of Hormuz would reopen fully if a deal is reached.
- Temporary pause in “Project Freedom” reinforced expectations of de-escalation in West Asia.

Oil plunged as hopes for US–Iran deal eased supply concerns
- Brent crude tumbled 7.8% to $101.27 per barrel, while WTI dropped 7.0% to $95.08.
- Prices fell to two-week lows amid optimism over a possible US–Iran peace agreement.
- Reports suggested Washington and Tehran were nearing an initial diplomatic breakthrough.
- Brent briefly slipped below $100 during the session for the first time since April 22.
- Markets sharply reduced geopolitical risk premium tied to Strait of Hormuz disruptions.
- Expectations of improved Gulf shipping flows weighed heavily on crude prices.

Day’s Ledger*

Economic Data

German March Factory Orders Data
UK April S&P Global Construction PMI
US Weekly Initial Jobless Claims
US April-June Atlanta Fed GDPNow

Corporate Actions

Earnings: Aditya Birla Lifestyle Brands, Bharat Forge, Biocon, Britannia Industries, BSE, Coromandel International, Dabur India, Escorts Kubota, Indraprastha Gas, Lupin, Mahanagar Gas, MRF, Pidilite Industries, Sonata Software, Thermax, Vikram Solar, and V-Mart Retail

Tickers to Watch

GODREJ CONSUMER PRODUCTS Jan-Mar net profit rose 9.7% YoY to ₹4.52 billion from ₹4.12 billion, aided by steady volume growth.
BAJAJ AUTO Jan-Mar standalone net profit jumped 34% YoY, beating estimates on strong exports and richer product mix.
ONE 97 COMMUNICATIONS reported Jan-Mar net profit of ₹1.84 billion versus a loss of ₹5.40 billion YoY.
BLUE STAR Jan-Mar consolidated net profit rose 17% YoY to ₹2.27 billion from ₹1.94 billion.
SHREE CEMENT Jan-Mar net profit declined 4.3% YoY to ₹5.32 billion from ₹5.56 billion.
GREAVES COTTON Jan-Mar net profit fell 6.3% YoY to ₹0.23 billion from ₹0.24 billion.
PB FINTECH Jan-Mar net profit surged 54% YoY to ₹2.61 billion, while revenue rose 37% to ₹20.61 billion.
RADICO KHAITAN Jan-Mar net profit nearly doubled to ₹1.80 billion from ₹0.92 billion on premiumisation-led growth.
KANSAI NEROLAC PAINTS Jan-Mar consolidated net profit increased 3.5% YoY to ₹1.12 billion from ₹1.09 billion.
ZAGGLE PREPAID OCEAN SERVICES signed a three-year agreement with The Supreme Industries Ltd for its Zaggle Propel rewards platform.
BIRLASOFT Jan-Mar net profit rose 44.1% YoY to ₹1.76 billion from ₹1.22 billion on improved operating performance.

Must Read

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(*Compiled from various media sources)