Asian equity markets surged Monday as investors priced in the economic benefits of a potential end to the Iran conflict, with Japan's Nikkei 225 jumping 3.1% and oil prices falling sharply on expectations that the Strait of Hormuz will reopen to commercial shipping.
U.S. President Donald Trump said negotiations with Iran were "proceeding in an orderly and constructive manner," signaling progress toward a deal that would end the war, reopen the critical waterway, and see Iran surrender its stockpile of highly enriched uranium. Regional officials told The Associated Press on Sunday that the United States is close to reaching such an agreement.
Energy Markets Respond
The prospect of reopening the Strait of Hormuz sent oil prices tumbling, with benchmark U.S. crude down $4.35 to $92.25 a barrel early Monday and Brent crude falling $4.16 to $99.38 a barrel. The strait's closure has prevented oil tankers from exiting the Persian Gulf and delivering crude to customers worldwide, disrupting global supply chains and driving prices higher.
Analyst Stephen Innes said, "Markets are rapidly transitioning from pricing geopolitical fear toward pricing a potential peace dividend as Hormuz reopening expectations pressure oil and the dollar lower." The development carries particular significance for Japan, which imports almost all its oil, most of it through the strait.
Regional Market Performance
Japan's benchmark Nikkei 225 surged 3.1% in morning trading to 65,321.56, reflecting investor optimism about reduced energy costs and improved regional stability. Australia's S&P/ASX 200 added 0.4% to 8,692.70, while the Shanghai Composite edged up 0.4% to 4,127.53. Trading was closed in South Korea and Hong Kong for holidays marking Buddha's birthday, and trading will be closed in the U.S. on Monday for Memorial Day.
Currency and Bond Markets
In currency trading, the U.S. dollar declined to 158.80 Japanese yen from 159.16 yen, while the euro cost $1.1641, up from $1.1605. The shift reflects reduced demand for safe-haven assets as geopolitical tensions ease.
Friday on Wall Street, stocks finished their eighth straight winning week, the best such streak since 2023, even though a survey showed U.S. consumers are feeling even worse about the economy. The S&P 500 added 0.4% and pulled closer to its all-time high set in the middle of last week. The Dow Jones Industrial Average rose 0.6%, and the Nasdaq composite gained 0.2%.
Recent earnings reports from U.S. companies that topped analysts' expectations also helped markets. Worries about inflation have pushed bond yields higher worldwide. The yield on the 10-year Treasury edged down to 4.56% Friday from 4.57% late Thursday, but it remained well above its 3.97% level from before the war.
Why This Matters:
The potential reopening of the Strait of Hormuz represents a significant development for global energy markets and economic stability. For energy-dependent economies like Japan, reduced oil prices would ease inflationary pressures and lower costs for businesses and consumers. The diplomatic progress demonstrates the effectiveness of direct negotiations in resolving conflicts that threaten critical commercial infrastructure. However, bond yields remain elevated compared to pre-war levels, indicating that inflation concerns persist despite the prospect of lower energy costs. The market's strong performance despite weak consumer sentiment suggests investors are prioritizing corporate earnings strength and geopolitical stability over near-term economic anxieties. The resolution of the Iran conflict would remove a major source of supply disruption and restore market confidence in global trade routes.