Asian Stocks Slip as US-Iran Ceasefire Hopes Lift Oil, Dollar Strength Persists

Asian stock markets traded cautiously on Monday as investors weighed a fragile ceasefire between the United States and Iran, ongoing geopolitical uncertainty in the Middle East, and growing expectations that the U.S. Federal Reserve could raise interest rates again this year. While hopes of renewed diplomacy offered some relief to global markets, concerns over energy prices, artificial intelligence valuations, and tighter monetary policy continued to limit investor confidence.

The latest market sentiment followed reports that Washington and Tehran had agreed to halt renewed hostilities after several days of retaliatory strikes threatened an interim peace agreement. The renewed diplomatic effort comes after an Iranian projectile struck a cargo vessel in the Strait of Hormuz last week, prompting both sides to accuse each other of violating the temporary ceasefire.

Despite the easing tensions, investors remained cautious. Futures linked to the S&P 500 and Nasdaq gained 0.4%, while European stock futures advanced 0.2%. In Asia, Japan’s Nikkei declined around 1%, South Korea’s KOSPI dropped nearly 2%, and the MSCI Asia-Pacific index excluding Japan fell 0.4%.

Market analysts said investors were struggling to find a clear direction as they awaited further developments from the Middle East. Positive diplomatic headlines could improve sentiment later in the trading session, but for now, trading activity remained largely driven by short-term capital flows rather than strong economic catalysts.

Oil prices continued to receive support from uncertainty surrounding the ceasefire. Although crude has surrendered much of its conflict-driven rally as supply concerns eased, traders remain wary that disruptions could return if negotiations break down. Brent crude futures climbed 0.85% to approximately $72.60 per barrel, while U.S. West Texas Intermediate crude gained more than 1% to around $70.01 per barrel.

The current 14-point interim peace agreement, reached on June 17, aims to end the fighting that began in late February, restore safe navigation through the Strait of Hormuz, and provide a framework for continued discussions over Iran’s nuclear program. However, market participants remain skeptical about the durability of the agreement, with many viewing the ceasefire as vulnerable to further violations.

Beyond geopolitical risks, investors also continued to reassess the outlook for technology stocks. After years of strong gains fueled by artificial intelligence enthusiasm, concerns are emerging that valuations for major AI companies have become increasingly stretched. Although Micron recently delivered a strong earnings outlook and Apple implemented higher product pricing, analysts believe investor interest is gradually shifting away from mega-cap technology companies toward smaller and more economically sensitive sectors.

Strategists at Bank of America noted that markets are beginning to rotate into cyclical industries after years of concentrated investment in AI leaders. Meanwhile, the Bank for International Settlements warned that intense competition, supply chain constraints, and heavy capital spending could eventually create conditions similar to previous technology investment bubbles.

Interactive Brokers senior economist Jose Torres said businesses are facing rising infrastructure costs as they invest heavily in next-generation technologies. Those financial pressures could increase risks if expected returns fail to materialize, encouraging investors to seek more defensive sectors in recent weeks.

Monetary policy expectations also remained a major market driver. Although softer oil prices could eventually ease inflation pressures, elevated energy costs continue to complicate the Federal Reserve’s outlook. Markets now expect at least one U.S. interest rate hike this year, marking a significant shift from earlier forecasts that anticipated two rate cuts before tensions in the Middle East escalated.

Bank of America maintains an even more hawkish stance, projecting three additional rate hikes as persistent inflation, resilient labor market conditions, and the leadership of new Federal Reserve Chair Kevin Warsh support tighter monetary policy.

The stronger rate outlook has boosted the U.S. dollar. The U.S. Dollar Index traded near 101.33, hovering just below its one-year high reached last week. Meanwhile, the Japanese yen remained under pressure at around 161.77 per dollar, with traders cautious about the possibility of intervention from Japanese authorities should the currency weaken further.

The stronger dollar also weighed on precious metals. Gold slipped roughly 0.4% to about $4,072 per ounce and remains on track for its largest quarterly decline since 2013, reflecting reduced demand for safe-haven assets as investors increasingly focus on higher U.S. interest rates and dollar strength.