Asian markets temper US-Iran deal optimism as oil prices plunge

SINGAPORE: Asian stocks made cautious gains on Tuesday (Jun 16) after a rally in the previous session on news of a US-Iran peace deal, while investors assessed a widely expected Bank of Japan rate increase to a 31-year high.

The yen edged up 0.1 per cent to 160.215 against the dollar, and the Nikkei 225 jumped 0.9 per cent to a new all-time peak above 70,000 after the Japanese central bank voted 7-1 to hike its benchmark policy rate to 1 per cent, levels last seen in 1995.

S&P 500 e-mini futures reversed early losses to trade flat, while MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.4 per cent, with Korean shares rising 2.3 per cent.

Stocks in Hong Kong weighed on the benchmark after weaker-than-expected retail sales and fixed-asset investment data from China.

Markets settled into a more measured tone on Gulf developments as the initial excitement over the preliminary agreement between Washington and Tehran began to fade.

Oil prices, which finished at a three-month low overnight, reflected the cautious stance, with Brent crude futures sliding 0.3 per cent to US$82.90 a barrel. Shippers in Asia and Europe said rebuilding confidence in resuming transit through the Strait of Hormuz could take weeks.

While US President Donald Trump's announcement of a deal with Iran drew initial investor relief on Monday, it also puts Washington on a collision course with Israel.

"While it is an important diplomatic breakthrough that should remove a key source of market volatility, the durability of the deal is likely to be tested in the future," Westpac analysts wrote in a research note. "Many sticking points, including the fate of Iran’s nuclear programme, were left to be resolved in subsequent negotiations."

WALL STREET RALLY

Overnight on Wall Street, stocks and bonds rallied on optimism over the deal. The S&P 500 jumped 1.7 per cent, and the Nasdaq Composite surged 3.1 per cent, while the Dow Jones Industrial Average and the STOXX 600 both closed at record highs.

Beyond geopolitics, traders are also awaiting a decision from the Reserve Bank of Australia, which is expected to pause its tightening cycle when it meets later on Tuesday, according to a Reuters poll of economists.

Later in the day, Bank of Japan Deputy Governor Shinichi Uchida will hold a press briefing to explain the central bank's decision, which Governor Kazuo Ueda will miss because he is undergoing medical treatment.

"We do not anticipate any major changes to the Bank’s assessment of current conditions," analysts from Mitsubishi UFJ wrote in a research note.

"We expect Deputy Governor Uchida’s press conference, including the rationale he presents for the rate-hike decision, will be based largely on Governor Ueda’s Jun 3 speech," the note added. "Mr Uchida is also likely to follow the governor’s remarks when discussing future policy decisions."

The US dollar index, which measures the greenback's strength against a basket of six currencies, held steady at 99.70, firmly within the tight trading channel in which it has sat all week.

The yield on the US 10-year Treasury bond was up 0.4 basis points at 4.471 per cent. Gold moved 0.4 per cent higher at US$4,321.22.

In cryptocurrency markets, bitcoin was down 0.8 per cent at US$65,938.29, while ether slumped 2.1 per cent to US$1,777.02.