Asia Stocks Rise, Dollar Slips as Israel-Iran Ceasefire Boosts Market Optimism

Asian stock markets inched upward on Wednesday following a tentative ceasefire between Israel and Iran, restoring some investor confidence and leading to a return to riskier assets. The easing of geopolitical tensions helped crude oil prices stabilize near multi-week lows, alleviating fears of an energy shock. Japan’s Nikkei rose by 0.3%, Hong Kong’s Hang Seng gained 0.8%, and Chinese blue-chip stocks added 0.5%. Overall, markets reflected cautious optimism as fears of a broader Middle East conflict temporarily receded.

The U.S. dollar hovered near a four-year low against the euro, and two-year Treasury yields dropped to their lowest since early May. Lower oil prices contributed to subdued inflation concerns, prompting a softening in bond yields. Meanwhile, global stocks, as measured by the MSCI index, remained near record highs, signaling that investors are shifting focus back to economic fundamentals rather than geopolitical risk.

Despite the ceasefire, tensions remain fragile. Israel has vowed to respond to recent Iranian missile attacks, which followed U.S. President Donald Trump’s declaration of an end to hostilities. A preliminary U.S. intelligence assessment revealed that airstrikes on Iran only temporarily disrupted its nuclear capabilities, contradicting Trump’s claim of having “obliterated” the program. Analysts suggest that while markets may tolerate limited military engagements, fears of a major escalation involving the U.S. or disruptions in the Strait of Hormuz remain key concerns.

U.S. markets reacted positively, with the S&P 500 and Dow Jones both rising over 1%, and the Nasdaq climbing nearly 1.5%. Brent crude rebounded slightly, gaining 83 cents to reach $67.97 per barrel after a sharp two-day drop, while U.S. West Texas Intermediate crude mirrored the gain, trading at $65.20. This modest recovery in oil suggests that traders are reassessing the immediate supply risks tied to the Middle East situation.

Beyond geopolitics, U.S. monetary policy continues to influence market sentiment. Federal Reserve Chair Jerome Powell warned that new tariffs could push inflation higher this summer, affecting the timing of potential interest rate cuts. At the same time, recent data showed an unexpected drop in U.S. consumer confidence and signs of labor market softening. The likelihood of a rate cut in July currently stands at around 19%, as markets await further clarity from the Fed in coming weeks.

Source: Reuters