Asian Stock Markets Show Restraint as US-Iran Nuclear Discussions Loom

Financial markets across Asia displayed cautious trading Tuesday with many exchanges closed for Lunar New Year holidays. Investors remained watchful ahead of scheduled nuclear negotiations between the United States and Iran in Geneva.

Financial markets throughout Asia exhibited restrained trading activity Tuesday as investors awaited nuclear discussions between the United States and Iran scheduled to commence in Geneva later that day.

Trading volumes remained light due to holiday closures, with exchanges in China, Hong Kong, Singapore, Taiwan and South Korea shuttered for Lunar New Year celebrations. American markets had also been closed Monday in observance of Presidents’ Day.

Japan’s Nikkei index declined 0.9% while Australia’s S&P/ASX200 managed a modest 0.24% increase.

U.S. Treasury yields for 10-year bonds decreased by 2.5 basis points, settling at 4.029% on Tuesday.

Japanese government bond yields also retreated, with 20-year JGB yields dropping 5.5 basis points to 3.025% and 30-year yields falling 6 basis points to the same level. Bond yields and prices move in opposite directions.

A poorly received 5-year bond auction conducted earlier resulted in those yields declining 4.5 basis points to 1.625%.

American stock futures pointed to weakness, with Nasdaq futures falling 0.8% and S&P 500 futures declining 0.4%.

The dollar index, which tracks the U.S. currency’s performance against major trading partners, held relatively steady at 97.12 following a modest 0.2% overnight increase.

Japan’s struggling economy continued drawing attention Tuesday, following disappointing economic growth data released the previous day.

Officials reported Monday that Japan’s economy expanded at an annualized rate of just 0.2% during the fourth quarter, significantly below economists’ expectations of 1.6% growth as government expenditures weighed on overall activity. The Japanese yen weakened 0.3% against the dollar Tuesday, trading at 153.05 per dollar.

These disappointing economic figures underscore the difficulties facing Prime Minister Sanae Takaichi and may strengthen her arguments for more robust fiscal stimulus measures, according to economic analysts.

The Bank of Japan’s next policy meeting is scheduled for March, though traders see minimal probability of an interest rate increase. Reuters polling of economists last month indicated most expect the central bank to delay policy tightening until July.

“The market has likely assumed that softer GDP data in the fourth quarter will encourage PM Takaichi’s plans to offer additional fiscal support and reduce the sales tax on food,” NAB analysts wrote in a research note.

“Pricing for BOJ rate hikes nudged a little lower post the GDP data, with only 4 basis points priced for the March meeting and 16 basis points priced for April.”

Australia’s central bank indicated Tuesday that it believes inflation would have remained persistently elevated without the interest rate increases implemented this month, though officials remain uncertain whether additional tightening measures will be required.

Energy markets displayed mixed performance ahead of the U.S.-Iran diplomatic talks, which aim to reduce regional tensions amid expectations of increased OPEC+ oil production.

West Texas Intermediate crude prices rose 0.95%, though this included Monday’s price movements since the contract lacked settlement due to the American holiday.

Brent crude futures dropped 0.5% during Asian trading hours after gaining 1.33% Monday.

Iran’s Revolutionary Guards navy conducted exercises in the Hormuz Strait Monday, according to the semi-official Tasnim news agency, one day before the resumption of Iran-U.S. nuclear negotiations. This waterway handles approximately 20% of global oil transportation.

“The market remains unsettled by geopolitical uncertainties, with investors cautious due to the pending U.S.-Iran and Ukraine negotiations this week,” ANZ analysts said.

“Speculative positions have been increasing in recent weeks. If tension in the Middle East eases or meaningful progress is made on the Ukraine war, the risk premium currently built into oil prices could swiftly unwind.”

Gold prices fell 0.82% to $4,950 per ounce as Monday’s stronger dollar made the precious metal more expensive for international buyers using other currencies. Silver prices declined 1.6%.