Asian Stocks Hit Fresh Peaks, Dollar Slides as Middle East Peace Hopes Rise
By Ankur Banerjee
SINGAPORE, May 7 (Reuters) — Asian stocks stormed to fresh all-time highs on Thursday, the dollar softened, and oil prices nursed heavy losses as investors leaned into growing expectations of a peace deal in the Middle East. But the rally came with a caveat: the fate of the strategically vital Strait of Hormuz — and broader U.S.-Iran tensions — remains very much in play.
Japan's Nikkei, returning from a long holiday weekend, blasted through the 62,000 mark for the first time, catching up on a blistering AI-driven rally fueled by blockbuster earnings. South Korean and Taiwanese benchmarks also hit record levels, riding the same wave of tech optimism.
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1% to another all-time high, bringing its weekly gain to 7%.
“The moves are justified if a deal materializes — it would be a genuine breakthrough,” said Kyle Rodda, senior financial analyst at Capital.com. “But we’ve seen this movie before. The rug could get pulled out pretty quickly. If talks keep progressing, Asian markets will keep rallying. If they stall, buckle up.”
Iran confirmed it is reviewing a peace proposal that sources say would formally end the conflict but sidestep key U.S. demands — including a suspension of Iran’s nuclear program and the reopening of the Strait of Hormuz, whose closure has sent global oil prices soaring.
The prospect of a deal sent oil prices sliding nearly 8% on Wednesday. Brent crude edged up slightly to $102.11 a barrel in early Asian trading on Thursday, but remains roughly 40% higher than before the conflict began in late February.
“Even if the strait reopens in the coming weeks, oil is likely to stay elevated and slow to ease, given damage to energy infrastructure and precautionary stockpiling,” OCBC analysts warned in a note.
The rally has been fueled in part by a wave of strong tech earnings. Overnight, the S&P 500 and Nasdaq both closed at record highs, with S&P 500 companies on track for their strongest profit growth in over four years.
Still, the broader economic picture remains fragile. Federal Reserve officials have flagged that the war is raising the risk of a sustained inflation shock, with high oil prices and growing supply chain disruptions adding to pricing pressures. Ten-year Treasury yields are around 40 basis points higher than when the conflict began.
“This peace rally feels good, but it’s built on sand until we see real movement on the Strait of Hormuz,” said Maria Chen, a portfolio manager at a Singapore-based hedge fund. “I’m not buying the hype — I’ve been burned by false dawns before. Oil isn’t going back to $80 anytime soon, and the Fed is stuck between a rock and a hard place.”
In currency markets, the euro held onto overnight gains of about 0.5%, trading at $1.1747. Sterling rose 0.4% to $1.3591. The dollar index slipped to 98.032.
The yen remained in the spotlight after a series of sharp moves in recent sessions fueled speculation that Tokyo may be intervening to support the battered currency. The dollar was last at 156.29 yen, little changed on the day, after the yen hit a 10-week high of 155 in the previous session.
“The key question is whether the Ministry of Finance will keep defending the yen or feels it’s already spent enough firepower,” OCBC analysts said. “Intervention alone is unlikely to shift the broader trend unless backed by stronger policy support — like a more assertive BOJ hiking cycle or better alignment with external drivers such as lower oil prices and U.S. yields.” They maintained their year-end target of 155.
Investors are now turning their attention to Friday’s U.S. non-farm payrolls report. According to a Reuters survey, economists expect job growth of 62,000 in April, a slowdown from the 178,000 rebound seen in March.
“The jobs data will be the next test for this rally,” said James Tan, a market strategist at a Tokyo-based brokerage. “If it comes in weak, the peace trade could unravel fast. Markets are pricing in a lot of good news already.”
(Reporting by Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman)