Asia open: Trump-Iran peace optimism sparks equity rally as sticky U.S. inflation risks loom large

• Global equity markets rallied as optimism over a potential U.S.-Iran peace agreement boosted risk appetite, driving a sharp pullback in oil prices and renewed buying in Asian and U.S. equities.
• Despite improving geopolitical sentiment, financial markets continue to price in a “higher for longer” interest-rate environment as sticky U.S. inflation and elevated bond yields reinforce expectations that the Federal Reserve may still tighten policy later this year.
• Asia Pacific markets were led by Japan’s strong equity surge and Singapore’s stronger-than-expected Q1 GDP growth. At the same time, policymakers across the region remain highly sensitive to ongoing energy supply disruptions tied to the Strait of Hormuz blockade.
• Chart of the day: Hang Seng Index’s potential short-term rebound on sight above 25,267 key short-term support with 25,850 as upside trigger level.

• Imminent U.S.-Iran peace deal speculation sparks market turnaround: Global risk appetite surged following a flurry of “optimistic messaging” from U.S. President Donald Trump and Secretary of State Marco Rubio, suggesting that an imminent peace deal between the United States and Iran is on the horizon. The sudden wave of diplomatic optimism triggered a swift reversal of global concerns about stagflation.
• Iran downplays imminent pact, citing Hormuz specifics: Countering the initial wave of Washington optimism, Tehran issued a cautious statement clarifying that a possible memorandum of understanding does not yet contain critical specifics regarding the Strait of Hormuz, warning market participants that a comprehensive deal is not immediate.
• Japan eased market concerns over government finances: Japanese Prime Minister Takaichi said the government will finance its extra budget without increasing bond issuance on a calendar basis. The supplementary budget will total just over 3 trillion yen and will be submitted to parliament as early as next week, with energy subsidies to be a key feature.
• Bank of Japan Deputy Governor Himino reaffirmed the BoJ’s rate hike path: BoJ’s Himino, in his testimony to the Diet (Japan’s parliament), highlighted the central bank’s commitment to raising interest rates, while flagging that the timing of the rate hikes will be dependent on Middle East developments that affect Japan’s growth and inflation trend.

• Geopolitical “whiplash” and energy fragility: Cross-asset markets are currently caught in a sharp tug-of-war between speculative peace breakthroughs and tangible, physical supply realities. While optimistic traders are driving short-covering rallies, independent energy researchers (IEA) warn that global oil inventories are set to reach critical levels by June, potentially sending crude prices soaring past $150/bbl if the Hormuz blockade is not structurally resolved.
• The repricing of “higher for longer” into active tightening: Before the escalation of the Iran war, macro participants expected two to three Fed rate cuts in 2026. Following a brutal string of sticky consumer price metrics (headline CPI climbing to 3.8% and core PCE expected to edge up to 3.3%), the Fed funds futures market has completely erased easing expectations, pivoting toward an active probability of a Fed interest rate hike by December 2026.
• The trillion-dollar primary market liquidity drain: The combined arrival of SpaceX’s mammoth $75 billion capital call alongside a confidential draft IPO filing from OpenAI signals a structural shift in equity markets. This tech-focused listing boom represents a major real-time test of public liquidity and investor risk appetite.

Equities: U.S. stock index futures pointed higher, buoyed directly by the sudden wave of optimism surrounding the Trump-Iran memorandum. This follows a quiet Memorial Day market closure in the U.S. and UK, where equity sentiment remained strongly constructive despite underlying yield concerns.

Fixed Income: Developed bond markets face intense multi-speed pressures despite a softening of oil prices due to a potential peace deal between the US and Iran. U.S. Treasuries remain deeply unanchored, with long-dated yields resting near 2007 highs as the 30-year yield continued to hold at the 5% psychological level.

FX: The U.S. Dollar Index (DXY) weakened marginally as capital reallocated out of safe-haven cash positions and back into risk-correlated cross-border pairs, offering temporary structural relief to G10 and emerging currencies. AUD (+0.7%), GBP (+0.6%), and EUR (+0.4%) against the USD on Monday, 25 May.

Commodities: Crude oil plummeted aggressively, with Brent crude briefly slipping below the critical $100/barrel milestone to click a fresh two-week low as geopolitical war premium leaked out. Conversely, spot gold prices rebounded by 1,3% as a softening greenback triggered a technical bounce to close Monday’s session at $4,570/oz but remained below the 20-day moving average that is acting as near-term resistance at $4,602/oz.

• Japanese equities explode to all-time highs: Tokyo led global markets in a massive single-session breakout, with the benchmark Nikkei average surging 3% to lock a record high as local allocators aggressively bet on a rapid resolution to the Middle East supply crisis. In today’s Asia opening session, profit-taking activities have emerged in the Japanese stock market as the Nikkei 225 slipped by 0.4%, while other regional benchmark stock indices traded positively, such as the Hang Seng Index (+0.2%), China A50 (+0.2%), and KOSPI (+3.4%), which are showing intraday gains.
• Singapore Q1 GDP blows past estimates: Backed heavily by the regional AI infrastructure boom, Singapore reported stellar Q1 GDP growth of 6.0% y/y, handily beating consensus expectations. However, the Ministry faces highly mixed forward prospects tied to persistent Middle East maritime shocks.
• Regional currency stabilization: Parallel to the softening of the greenback, the broader Asia FX complex firmed notably, easing immediate balance-of-payments capital flight risks for energy-importing central banks.

1. Japan Leading Economic Index Final (Mar) – 1:00 pm SGT Impact: USD/JPY, JPY crosses, Nikkei 225
2. Singapore Industrial Production (Apr) – 1:00 pm SGT (consensus: 12% y/y, Mar: 10.1%) Impact: USD/SGD, SGD crosses, STI
3. US Conference Board Consumer Confidence (May) – 10:00 pm SGT Impact: USD, US stock indices
4. US-Iran peace deal news flows Impact: All asset classes

The recent 6.6% decline seen in the price actions of the Hong Kong 33 CFD (a proxy of the Hang Seng Index futures) from its intraday high of 26,642 has managed to find support at the early April 2026 gap support of 25,267.

In addition, the hourly RSI momentum indicator has continued to display short-term bullish momentum conditions after a prior bullish divergence condition at its oversold region flashed out earlier on 22 May 2026.

Watch the 25,267 key short-term pivotal support for a potential rebound. A clearance above 25,850 (potential upside trigger) sees the next intermediate resistances coming in at 26,080 and 26,210.

On the other hand, a break with an hourly close below 25,267 invalidates the bullish scenario for a further corrective decline to expose the next intermediate supports at 24,890 and 24,606.

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