Stocks rally in Asia as Iran cites progress in talks

SYDNEY: Asian share markets swung higher on Monday as Iranian negotiators said progress had been made in peace talks with the United States, helping calm fears the process was breaking down.

Officials from Qatar and Pakistan also released a statement saying the first session of talks had concluded and progress was made on a roadmap to reach a final deal in 60 days.

Earlier, US President Donald Trump had threatened fresh attacks on Iran as vice president JD Vance met Iranian officials for the first talks under an interim peace deal.

The talks had been overshadowed by Tehran’s announcement it had again closed the Strait of Hormuz, with tracking sites showing fewer vessels transiting after 32 ships made the passage on Friday and 26 on Saturday.

The news saw Brent crude futures shed early gains to ease 0.4% to US$80.17 a barrel, far away from its May peak of US$126.41. US crude remained 1.2% firmer at US$77.52 a barrel.

Japan’s Nikkei rose 1.9%, having climbed almost 8% last week to all-time highs. South Korea’s red-hot market added another 2.6%, after surging more than 11% last week on demand for semiconductor stocks.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.0%, while Chinese blue chips were flat.

S&P 500 futures pared early losses to be off 0.2%, while Nasdaq futures lost 0.3%. In Europe, EUROSTOXX 50 futures edged down 0.1%, while DAX futures were near flat and FTSE futures added 0.1%.

Market narrows odds on Fed hike

Treasuries remained under pressure following a hawkish turn by the Federal Reserve last week that led markets to price in a 75% chance of a rate hike as early as September.

Futures imply 38 basis points of tightening by year-end, while yields on 2-year notes rose as much as 4 basis points to the highest since early 2025 at 4.2276%.

“Our baseline call is for patience and a first hike in the second half of 2027, but believe the margin for error and the tolerance for further inflation is limited, with genuine risks of earlier hikes,” said Fabio Bassi, head of cross-asset strategy at JPMorgan.

“We remain constructive on risk assets as improving labour markets will keep rates higher for longer, supporting a narrow leadership in Quality Growth, Large Cap and Tech,” he added. “We see upside risks for the S&P target tilted towards 8,000.”

The Fed’s favoured gauge of core inflation is due on Thursday and is forecast to rise a tick to 3.4% in May, underlining the risk of tighter policy.

Central bank speakers include governor Christopher Waller and Federal Reserve Bank of New York president John Williams.

The Fed’s hawkish outlook kept the dollar supported at 161.48 yen, with only the threat of Japanese intervention preventing a test of resistance at 161.96, a top from mid-2024.

The euro eased to US$1.1464, after hitting a three-month low on Friday at US$1.1418. Political uncertainty nudged sterling down 0.2% to US$1.3210.

Reports claimed Prime Minister Keir Starmer was considering his political future, after rival Andy Burnham’s decisive election victory to parliament prompted more ministers in the governing Labour Party to call for him to go.

“Amid the uncertainty around a potential challenge against the UK PM and what that means for the fiscal outlook, the likelihood is that gilts will remain under selling pressure to start the week,” said Skye Masters, head of market research at NAB.

In commodity markets, news of the progress in peace talks helped gold bounce 1.1% to US$4,205 an ounce XAU.