Asian markets retreated Friday as geopolitical uncertainty and central bank rate hike expectations weighed on investor sentiment, with major Chinese markets closed for the Dragon Boat festival and U.S. futures declining after the postponement of critical talks on Iran's nuclear program and reopening the Strait of Hormuz to oil traffic.
Markets in Hong Kong, Shanghai and Taiwan remained closed for holidays, thinning trading volumes across the region. U.S. markets were also closed Friday for Juneteenth. The postponement of high-stakes negotiations between the United States and Iran dimmed earlier optimism over a deal to end their war, creating fresh uncertainty for energy markets and global trade routes.
Central Banks Tighten Monetary Policy
Investor sentiment has been hit by expectations that central banks including the Federal Reserve will raise interest rates to curb inflation. Tokyo's Nikkei 225 wavered between gains and losses and was little changed at 71,082.81. The Bank of Japan raised its benchmark interest rate earlier this week to a three-decade high of 1% as it gradually adjusts its policies after years of near-zero or negative rates.
The government reported that consumer prices excluding volatile fresh foods was unchanged, but analysts said it would likely pick up in coming months despite higher fuel costs. Higher inflation was a factor driving the central bank's policy shift.
In South Korea, the Kospi lost 0.5% to 9,019.22 and the S&P/ASX 200 in Australia declined 1.1% to 8,818.40. India's Sensex lost 1%.
Wall Street Tech Rally Provides Brief Relief
On Thursday, stocks rose on Wall Street, erasing most of their losses from a day earlier to notch weekly gains thanks to big advances for heavyweight technology companies. The S&P 500 rose 1.1% to 7,500.58. The Dow Jones Industrial Average added 0.1% to 51,564.70 and the Nasdaq composite surged 1.9% to 26,517.93.
Technology stocks had some of the biggest gains and the most influence on the broader market's rise. Intel surged 10.6% after U.S. President Donald Trump announced that the semiconductor giant will make chips for Apple in the U.S. Other big semiconductor companies gained ground. Nvidia rose 3% and Micron Technology jumped 8.7%.
On the losing end, SpaceX fell for the second straight day since its big debut on the U.S. stock market last week. The Elon Musk-led rocket maker and AI company was down 3.6% following a 4.9% loss Wednesday.
Energy Markets Remain Volatile
Oil prices wavered after the United States and Iran signed an agreement to end their war and reopen the Strait of Hormuz to oil tanker traffic. Brent crude, the international standard, spent most of the day lower before settling 0.4% higher at $79.85 per barrel. U.S. benchmark crude fell 0.2% to $75.85 per barrel. Early Friday, Brent crude was down 0.5% at $79.34 per barrel. U.S. benchmark crude lost 0.5% to $75.37 per barrel.
Prices for crude oil are still above roughly $70 per barrel from before the war, but are well below the $100-plus price from a few weeks ago. The current deal between the nations waives sanctions against Iran and allows it to sell its oil freely. It also opens up the Strait of Hormuz, where a fifth of the world's oil supply is shipped.
Energy companies lost ground Thursday. Exxon Mobil fell 2.1% and Chevron fell 2.2%. Airlines had some of the bigger gains. American Airlines rose 3.7% and United Airlines rose 2.1%. Cruise line company Carnival jumped 3.2%.
Rising energy costs have been putting more pressure on already hot inflation. The average price of gasoline in the U.S. has dipped below $4 a gallon, but is still 25% higher than a year ago. Prices have been rising for a wide range of goods because of higher shipping costs.
The Federal Reserve kept its key interest rate unchanged this week but hotter inflation means it will likely raise rates by the end of the year. Lower interest rates make borrowing easier for businesses and households, spurring growth, but they also tend to stoke inflation.
In other dealings early Friday, the U.S. dollar rose to 161.39 Japanese yen from 161.38 yen. The euro slipped to $1.1441 from $1.1458.
Why This Matters:
The combination of persistent inflation and central bank tightening creates headwinds for economic growth and market stability. The Federal Reserve's likely rate increases by year-end will raise borrowing costs for businesses and consumers, potentially slowing expansion while necessary to restore price stability. Gasoline prices remain 25% higher than a year ago despite recent declines, continuing to strain household budgets and business operating costs. The postponement of Iran nuclear talks introduces renewed uncertainty into energy markets, where oil prices remain elevated above pre-war levels. Japan's shift to a 1% benchmark rate after decades of ultra-loose monetary policy signals a fundamental change in global central banking, with implications for capital flows and currency markets. The reopening of the Strait of Hormuz, through which a fifth of the world's oil supply is shipped, remains contingent on successful negotiations, leaving a critical chokepoint for global commerce in question.