Asian Stocks Recover as Oil Prices Drop on Extended US-Iran Deadline

Asian markets managed to reduce their initial losses on Friday, finding support from a decline in oil prices. This followed the decision by U.S. President Donald Trump to extend his ultimatum concerning Iranian power plants by ten days, after previously pushing it back from an initial 48-hour deadline.

Brent crude futures fell 0.7% to $107.23 a barrel, reversing a nearly 6% jump from the previous night. In contrast, Wall Street futures rose 0.6%, recovering some ground after the Nasdaq Composite entered correction territory with a 2.4% slump overnight. Futures for Europe's EUROSTOXX 50 also climbed 0.7%.

Nevertheless, reports suggesting Trump was considering deploying additional troops fueled worries about the conflict escalating into a ground war. There remains significant uncertainty over when the Strait of Hormuz, a critical oil shipping route, might reopen. Iran has already rejected a U.S. proposal to end the hostilities, labeling it as "one-sided and unfair."

"It is in everyone's interests for this conflict to be short," commented Diana Mousina, deputy chief economist at AMP. "However, that’s not how wars often work as negotiations break down or there is a miscalculation. So it could still get worse from here."

By the close, MSCI's broad index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was down 0.7%, having recovered from steeper losses earlier. For the week, the index fell 2.3%, marking its fourth consecutive weekly decline. Japan's Nikkei average ended down 0.1% but eked out a weekly gain of 0.3%.

Chinese mainland stocks defied the regional trend, with blue-chip shares rising 0.7%. Hong Kong's Hang Seng index also gained 0.7%. According to sources, Beijing is contemplating easing shareholding restrictions for certain major investors. This move aims to expand capital-raising options for commercial banks struggling with an economic slowdown.

Separately, Norway's Norges Bank became the latest central bank to signal inflation risks and upcoming interest rate hikes due to the war. While it held policy steady on Thursday, it now expects to raise rates this year—a stark reversal from its previous forecast of three cuts by the end of 2028.

Global bond yields surged anew as the rise in oil prices intensified inflation concerns. Japan's 10-year yield rose 8.5 basis points to 2.36%, and Australia's benchmark 10-year yield jumped 11 bps to 5.119%. The two-year U.S. Treasury yield held at 3.9817% after a 10-basis-point jump overnight, as traders increased bets on a Federal Reserve rate hike in September, with the probability now around 50%.

In currency markets, the U.S. dollar dipped slightly after three days of gains. The risk-sensitive Australian dollar edged up 0.2% to $0.6905, having earlier touched a two-month low of $0.6872. The euro gained 0.2% to $1.1544 after a 0.3% loss overnight. The yen hovered at 159.61 per dollar, with market participants anticipating possible intervention if it reaches 160.

Even gold prices climbed 2% to $4,468 an ounce, benefiting from safe-haven demand amid the geopolitical tensions.