Japan's Nikkei returned from a long holiday to cross 62,000 for the first time, catching up on a blistering AI-led rally after robust earnings that also catapulted South Korean and Taiwan stocks to records.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1%, hitting a record high. European stock futures pointed to a subdued open after the pan-European STOXX 600 rose 2% on Wednesday.
An Iran deal would be a breakthrough, so the sparkling market reaction on Thursday was justified, Kyle Rodda, senior financial analyst at Capital.com, said.
"But we've seen this story before, and the rug could get pulled out of the market pretty quickly too. Ultimately, if we keep seeing progress in talks, Asian markets will keep rallying."
Iran said it was reviewing a peace proposal that sources said would formally end the war while leaving unresolved the key US demands that Iran suspend its nuclear program and reopen the Strait of Hormuz, whose closure has sent oil prices surging.
A potential deal to end the war sent oil prices sliding nearly 8% on Wednesday. Brent crude edged back up on Thursday to $102.11 a barrel. [O/R]
Still, oil prices are around 40% higher than they were when the conflict began at the end of February, while 10-year Treasury yields are around 40 bps higher, underscoring the challenge facing the global economy from higher energy prices and their resultant pricing pressures.
Nick Twidale, chief market strategist at ATFX Global, said the market is still wrestling with execution risk, "both in terms of whether a deal is finalised and how quickly disrupted flows would normalise even if it is."
"WTI volatility highlighted this tension, with a sharp intraday sell-off followed by partial recovery into the close."
The rocketing oil prices whacked global markets in March but a fragile ceasefire and the prospect of a deal have spurred a risk-on rally since April that has been fuelled further by strong earnings reports from technology companies.
S&P 500 companies are on track for their strongest profit growth in more than four years, while blowout earnings from Samsung, SK Hynix and TSMC in Asia have added to the upbeat sentiment.
Investors are awaiting the US non-farm payrolls report on Friday, with jobs expected to have increased in April by 62,000 after rebounding 178,000 in March, a Reuters survey of economists shows.
Federal Reserve officials said the war is raising the risk of a sustained inflation shock, with continued high oil prices and developing concerns about problems with global supply chains.
In currency markets, the euro held on to its overnight gains of around 0.5% and last fetched $1.1747.
Sterling was at $1.3591 after rising 0.4% on Wednesday. The dollar index, which measures the US currency against six units, was at 98.032.
The yen remains in the spotlight after spikes in recent sessions prompted market speculation that Tokyo had intervened to support the long-battered currency.
The yen last fetched 156.29 per dollar, little changed on the day, having hit a 10-week high of 155 on Wednesday in the latest price spike.
"Intervention alone is unlikely to shift the broader trend unless backed by stronger policy support like a more assertive BOJ hiking cycle or better alignment with external drivers such as lower oil prices and US yields," OCBC analysts said in a note, maintaining a year-end target of 155.
Japan's top currency diplomat said on Thursday the country faces no constraints on how often it can intervene and is in daily contact with US authorities.
The remarks by Atsushi Mimura, the vice finance minister for international affairs, came ahead of a visit to Tokyo next week by US Treasury Secretary Scott Bessent, who analysts say is expected to discuss yen moves with his Japanese counterpart, Satsuki Katayama.
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