Asian equities advanced on Friday and the U.S. dollar hovered near six week highs as investors bet that peace talks between Washington and Tehran might finally ease the nearly three month war that has paralyzed the Strait of Hormuz and sent global energy markets into turmoil. U.S. Secretary of State Marco Rubio reported “some good signs” in negotiations to end the conflict, now in its twelfth week, though both sides remain deadlocked over Iran’s uranium stockpile and control of the waterway through which a fifth of world oil flows. The cautious optimism was enough to lift MSCI’s broadest Asia Pacific index by 0.8%, push Japan’s Nikkei up 2.8%, and drive Taiwan stocks 2.3 % higher, while U.S. and European futures pointed to a strong open buoyed by robust earnings from Nvidia and Big Tech.
Beneath the equity rally, however, oil markets remained jittery and the macro outlook darkened. Brent crude futures rose 1.9% to $104.56 a barrel on Friday, and West Texas Intermediate climbed to $97.64, but both benchmarks were still set for weekly losses after whipsawing on conflicting messages from the negotiations. The conflicting signals reflect the reality that while Pakistan brokered a two week ceasefire on 8 April, subsequent Islamabad talks collapsed by mid month, prompting the Trump administration to impose a naval blockade on Iranian ports and leaving the Strait of Hormuz effectively closed to normal commerce. Fitch Ratings has warned that a six month closure could drive Brent to an average of $120 per barrel, with spikes as high as $130-170, while current prices already reflect a substantial risk premium. The standoff has completely rewired the global interest rate outlook, traders who entered 2026 expecting two Federal Reserve rate cuts are now pricing in possible hikes by year end, as prolonged energy disruptions feed directly into realized inflation.
The inflationary spillover has lifted Treasury yields and supercharged the dollar, which traded at 99.247 against a basket of currencies and pushed the euro to $1.1614, close to a six week low. The Japanese yen remained perilously weak at 159.11 per dollar, just shy of the 160 threshold that triggered an estimated $65 billion intervention by Tokyo only weeks ago. Data showing Japan’s core inflation slowing to a four year low in April complicated the Bank of Japan’s calculus, yet ING economist Min Joo Kang noted that stronger than expected first quarter GDP and firm April exports demonstrated the economy’s resilience despite the energy shock, supporting the case for further tightening. At Federated Hermes, head of fixed income Mitch Reznick observed an “unusually strong linkage between oil prices and global rates,” reflecting how a borderless supply shock is forcing central banks to keep policy tighter for longer to restore price stability.
For now, the rally in risk assets rests on fragile diplomatic foundations. The White House continues to demand the “complete, immediate, and safe opening” of the Strait of Hormuz and an end to Iranian enrichment, while Tehran insists on full sanctions relief, war reparations, and recognition of its sovereignty over the waterway before any permanent deal. With the U.S. naval blockade entering its second month and both sides trading accusations of ceasefire violations, investors are pricing a binary outcome, a breakthrough could quickly deflate the energy risk premium and revive expectations of monetary easing, while an escalation would likely send oil soaring and deepen the stagflationary drag on global growth. As Chris Weston of Pepperstone noted, confidence levels remain low, but the news flow is at least trending toward “something tangible that markets can price with greater conviction.” Whether that conviction proves justified will depend less on Friday’s stock gains and more on whether diplomats can turn cautious hope into a durable peace.
