Key Takeaways

• KOSPI leads Asia: South Korea’s index surged 5.6%, coming back within sight of a record high.
• Nikkei hits all-time high: Japan’s benchmark jumped 5.4% to a record; TOPIX added 3.6% to its own peak.
• Broad regional rally: CSI 300 gained 1.3%, Shanghai Composite rose 0.9%, Hang Seng added 0.4%, Straits Times rose 1.2%, Nifty 50 futures gained 1.7%, and ASX 200 jumped 1.3%.
• U.S.-Iran MOU agreed: Both sides confirmed a memorandum of understanding to end the conflict and reopen the Strait of Hormuz, with a formal signing set by Friday.
• Nuclear talks to follow: Post-MOU discussions will focus on Iran’s nuclear activities; the U.S. could resume attacks if no nuclear deal is reached.
• Oil falls sharply: The prospect of fewer supply disruptions sent crude prices tumbling.
• Oil importers benefit most: India, Japan, and South Korea — all heavily reliant on Hormuz oil — stand to gain most from the MOU.
• SpaceX debut boosts sentiment: The rocket company’s stellar Wall Street debut on Friday provided additional positive momentum.
• S&P 500 futures rise 1.1%: U.S. markets pointed strongly higher in Asian trade.
• BOJ hike expected Tuesday: The central bank is widely anticipated to raise rates by 25 basis points, citing Iran war inflation pressures.
• BOJ outlook the key watch: ANZ analysts expect a largely hawkish pivot in the central bank’s guidance.
• RBA also Tuesday: Australia’s central bank is expected to hold rates unchanged.
• Central bank-heavy week: BOJ and RBA on Tuesday; Fed later in the week.

Asian stocks rose sharply on Monday as markets cheered the United States and Iran agreeing to a preliminary peace deal, with Japanese shares hitting record highs before a Bank of Japan meeting this week.

Regional markets also took positive cues from a strong Friday finish on Wall Street, where rocket company SpaceX clocked stellar gains in its market debut. S&P 500 futures rose 1.1% in Asian trade.

Focus this week is on a host of key central bank meetings, with the BOJ and Reserve Bank of Australia set to decide on interest rates on Tuesday, and the Federal Reserve meeting later in the week.

Asia Stocks Surge on U.S.-Iran Peace Deal

South Korea’s KOSPI was the best performer in Asia, rallying 5.6% and coming back within sight of a record high.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes added 1.3% and 0.9%, respectively, while Hong Kong’s Hang Seng rose 0.4%.

Singapore’s Straits Times Index rose 1.2%, while futures for India’s Nifty 50 added 1.7%.

The United States and Iran said they had agreed to a memorandum of understanding to end their conflict and reopen the Strait of Hormuz, with a deal set to be signed by Friday. The two sides will then engage in talks over Iran’s nuclear activities, with reports indicating the U.S. could resume its attacks on Iran if no nuclear deal is reached.

Still, the MOU ramped up hopes for an immediate de-escalation in geopolitical tensions in the Middle East, while oil prices fell sharply on the prospect of fewer supply disruptions.

Lower oil bodes well for several major Asian economies — including India, Japan, and South Korea — given their heavy reliance on oil imports through Hormuz.

Nikkei 225 Hits Record High; BOJ Set to Hike Rates

Japanese markets rallied in tandem with their Asian peers, with the Nikkei 225 and TOPIX adding 5.4% and 3.6%, respectively — both hitting record highs amid a rally across tech and non-tech sectors.

But Japanese markets face an upcoming test, with the BOJ widely expected to hike interest rates by 25 basis points at the conclusion of a two-day meeting on Tuesday.

The central bank has repeatedly signaled that it will consider raising rates in June, especially in the face of rising inflationary pressures due to the Iran war. Focus will be squarely on the BOJ’s outlook for the coming months, with ANZ analysts expecting a largely hawkish pivot.

Beyond the BOJ, Tuesday will also bring a Reserve Bank of Australia meeting, where the central bank is expected to leave rates unchanged.

Australia’s ASX 200 jumped 1.3% on Monday.