Asian equity markets extended their relief rally on Friday. Investors hoped for a breakthrough in U.S.-Iran peace negotiations. MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.8% higher. The region appeared set for a modest weekly rise despite ongoing uncertainties.

Japan’s Nikkei gained 2.8% on Friday. The index approached a new record high. Taiwan stocks rose 2.3% during the same session. Earlier in the week, Japan’s benchmark had surged 3.1% on Thursday.

Global market sentiment shifted dramatically to risk-on after Iran indicated progress. The country said the latest proposal from the U.S. had partly bridged the gap. This development increased the odds of a peace deal. Capital markets actively priced out the prolonged geopolitical risk premium.

U.S. stock futures rose 0.36% on Friday. European futures gained 1% and appeared poised for a strong start. Investor sentiment improved following robust earnings from big tech firms. Nvidia posted record quarterly revenue of $81.6 billion. The chip giant blew past Wall Street forecasts.

Technology Sector Leads Gains

Technology stocks delivered big gains across Asia during Thursday’s session. The voracious demand for artificial intelligence hardware drove the rally. Nvidia’s exceptional results fueled optimism across the semiconductor sector. Cooling bond yields provided fresh support for growth stocks.

South Korea’s benchmark Kospi index surged 8.4% on Thursday. Samsung Electronics shares contributed significantly to this jump. Unions at the company paused an 18-day strike. Improving labor relations helped reduce concerns over semiconductor supply-chain disruptions.

Elon Musk filed for a public sale of SpaceX shares. The filing with U.S. regulators laid out plans. This could become the largest initial public offering in history. The rocket and satellite company’s move boosted sentiment further. Market observers noted a thaw in billion-dollar tech IPO activity.

Japan Inflation Cools to Four-Year Low

Japan’s core consumer price index delivered softer-than-expected data. The index excludes fresh food but includes energy. It rose 1.4% year-on-year in April. This came in below market forecasts of 1.7%.

The Bank of Japan’s preferred inflation measure also slowed. The core-core CPI excludes fresh food and energy. It rose at a pace of 1.9% year-on-year. This compared to 2.4% in March. The reading marked the lowest level since July 2024.

The softer-than-expected data reduced pressure on the Bank of Japan. The central bank now has less urgency to tighten aggressively. This reinforced yen weakness despite ongoing currency concerns. The policy divergence versus the hawkish Federal Reserve widened further.

Government fuel subsidies largely drove the cooling inflation. These subsidies offset the Iran war oil shock. The 1.9% core-core CPI fell below the Bank of Japan’s 2% target. The central bank finds itself with renewed breathing room for policy decisions.

Oil Prices Remain Volatile Amid Peace Talk Uncertainty

Oil prices jumped on Thursday as peace accord hopes faded. Conflicting headlines on the state of talks created confusion. U.S. President Donald Trump described the latest discussions carefully. He said they were on the borderline between a deal and renewed strikes.

Brent crude futures rose 1.9% to $104.56 a barrel on Friday. The benchmark was set for a 6% drop for the week. U.S. West Texas Intermediate futures climbed 1.35% to $97.64. Prices remain well above pre-war levels.

Pakistan’s army chief was due in Iran on Thursday. Islamabad has taken on a mediation role. Tehran examines the new U.S. proposal to end the war. U.S. Secretary of State Marco Rubio acknowledged some progress.

Rubio said there had been some good signs. However, differences remain over key issues. Tehran’s uranium stockpile remains a sticking point. Control of the Strait of Hormuz also divides the parties. The near closure of this critical artery threatens world energy supplies.

European Markets Retreat on Middle East Concerns

European stock markets retreated on Thursday. Markets pulled back across Europe as the waiting game continued. The dollar firmed as hopes of an immediate accord faded. Conflicting messages on Iran talks kept investors guessing.

The EU warned on Thursday about economic headwinds. Eurozone growth would be less than expected this year. Inflation would be significantly higher than forecast. The Middle East war and subsequent energy shock take their toll.

A key survey revealed troubling news. Business activity in the eurozone contracted further in May. Weak demand caused by the conflict weighed down the region. The eurozone purchasing managers’ index registered a reading of 47.5. This marked a 31-month low after 48.8 in April.

A reading above 50 indicates growth. A figure below 50 signals contraction. British private-sector activity unexpectedly contracted this month. This marked the first decline in output in over a year. The UK economy faces a perfect storm of challenges.

Central Bank Policy Paths Diverge Further

Prolonged energy disruptions threaten global price stability. The war drags on and feeds through to prices across the globe. Traders price in rate hikes in developed and emerging markets. Markets now price in possible rate hikes from the U.S. Federal Reserve. This could happen by the end of the year.

This contrasts sharply with expectations before the war. Traders had anticipated two rate cuts. The shift reflects an unusually strong linkage between oil prices and global rates. The shock has become broad-based and borderless. What initially appeared as a shift in inflation expectations now feeds directly into realized inflation.

Central banks will need to keep policy tighter for longer. They must restore price stability. The diverging central bank paths create new trading opportunities. The Fed signals potential rate hikes due to sticky U.S. inflation. Meanwhile, the Bank of Japan finds itself with renewed breathing room.

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