Shares in Asia experienced a mixed performance on Tuesday following the U.S. military's announcement of what it described as self-defense strikes in southern Iran, targeting missile launch sites and boats suspected of laying mines. These military actions transpired amidst ongoing negotiations aimed at ending the conflict between the U.S. and Iran, which President Donald Trump affirmed on social media were "proceeding nicely."
As a result of the military strikes, U.S. futures markets saw a noticeable uptick. Oil prices, however, displayed variability, with Brent crude oil trading below $95 per barrel. The U.S. military emphasized that the strikes were conducted to safeguard American troops from perceived threats posed by Iranian forces. They also noted that restraint was exercised due to a ceasefire agreement with Iran, which has not issued an official response regarding the strikes. Additional details about the strikes and specifics concerning the threats from Iran remain scarce, leaving the status of the negotiations uncertain.
Market reactions have been tumultuous as various developments unfold and remarks from President Trump continue to influence sentiment. Stephen Innes, of SPI Asset Management, remarked that despite the market feeling optimistic as if a comprehensive agreement with Iran was already in place, significant and complex aspects of the negotiation remain unresolved. While Washington is projecting optimism, Iranian officials maintain that no imminent agreement exists.
In Japan, the Nikkei 225 index saw a decline of 0.4%, closing at 64,897.64, retreating from a recent all-time high achieved the previous day. Conversely, in Hong Kong, the Hang Seng index rose 0.3% to 25,668.55, while mainland China's Shanghai Composite index fell 0.7% to 4,122.87. South Korea's Kospi index recorded a substantial increase of 2.9%, closing at 8,075.71, as it resumed trading after a holiday. In Australia, the S&P/ASX 200 index dipped by 0.4% to settle at 8,653.80.
Futures for both the S&P 500 and the Dow Jones Industrial Average surged 0.6% early in the trading session. In the oil market, U.S. benchmark crude recorded a drop of $5.01, or over 4%, bringing it down to $91.59 per barrel. In contrast, Brent crude, the international benchmark, rose by $1.57 to $94.99 per barrel, recovering some ground after experiencing a decrease of nearly $5 the previous day.
U.S. markets remained closed on Memorial Day, contributing to a delayed market response. Meanwhile, European markets showed gains, with France's CAC 40 climbing 1.1%, Germany's DAX increasing by 1.0%, and Britain's FTSE 100 gaining 0.2%. The optimism in European markets appears to have been driven by reports of nearing progress towards a peace agreement, with regional officials stating that the United States was close to reaching an agreement with Iran that could potentially end the war, facilitate the reopening of the Strait of Hormuz, and lead Iran to surrender its stockpile of highly enriched uranium.
The reopening of the Strait of Hormuz is crucial for determining the direction of oil prices, as the ongoing conflict has disrupted oil tanker movements from the Persian Gulf, thereby hindering crude oil deliveries to global markets. Japan, heavily reliant on oil imports, sources most of its supply through the strategically important strait.
In currency transactions early Tuesday, the U.S. dollar strengthened against the Japanese yen, rising to 158.94 from 158.91. Meanwhile, the euro traded at $1.1634, down slightly from $1.1645.
