Asian markets rallied on Monday as signs of progress in US-Iran negotiations cooled fears of a Strait of Hormuz supply disruption. The diplomatic breakthrough came after weekend talks in Switzerland, where mediators Qatar and Pakistan outlined a 60-day path toward a broader settlement.
Diplomacy trims the war premium
Iranian Foreign Minister Abbas Araghchi confirmed progress on oil and petrochemical export waivers, port access, the release of frozen assets, and a reconstruction plan. US Vice President JD Vance also acknowledged forward movement, while mediators said technical discussions would begin immediately. This reduced the immediate risk of Hormuz traffic restrictions, which had spiked crude prices in recent weeks.
Equities react with relief
Japan’s Nikkei rose 1.9%, extending a record-breaking run, and South Korea’s Kospi surged 2.6% as semiconductor stocks gained on AI infrastructure demand. The MSCI Asia-Pacific index ex-Japan added about 1%. However, Wall Street futures were less optimistic, with S&P 500 and Nasdaq contracts edging lower, suggesting investors remained cautious about the durability of the détente.
Oil prices decline
Brent crude fell to near $80 a barrel, well below its May spike above $126, while WTI dropped 1.2% to around $75.50. Traders priced a lower chance of immediate Hormuz disruption, but analysts warned that any return of Iranian barrels still faced legal, banking, and insurance hurdles. The market also noted that Tehran’s statements could quickly reverse the trend.
Fed expectations cap the relief
The rally’s momentum was limited by a repricing of Federal Reserve rate expectations. Markets now price a higher likelihood of a rate increase by September, with two-year Treasury yields hitting their highest since early 2025. The upcoming core inflation data is expected to edge higher, reinforcing the hawkish stance. The stronger dollar, trading near 161.5 yen, added another layer of pressure.
The combined effect left global markets in a tentative balance—cheered by easing geopolitical risks but constrained by monetary tightening prospects.
