Asian Stocks and Bonds Rally While Oil Prices Extend Losses, Boosting Global Market Sentiment

Buoyed by Wall Street’s rally, Asian stock and bond prices moved higher, while falling crude oil prices eased inflation concerns and helped repair overall market risk sentiment. The Japanese yen remained largely steady ahead of the Bank of Japan’s policy decision, with traders widely expecting a rate hike.

In regional equity markets, the MSCI Asia Index rose 0.3%, led by South Korea’s KOSPI. U.S. stocks staged a strong rebound on Thursday, with the S&P 500 gaining 1.1% to mark its largest single-day increase since early August. Tech stocks outperformed sharply: the Nasdaq 100 climbed 1.7%, while a key gauge for chipmakers surged 3.1%. The U.S. market recovered losses triggered by the Federal Reserve’s first interest rate increase since 2023.

Optimistic market sentiment continued to build, with international oil prices extending their downward trend. Brent crude fell for the third consecutive session on Friday, dipping below $104 per barrel. The pullback came as concerns over supply disruptions eased, and market focus shifted to upcoming diplomatic negotiations that could shape the trajectory of U.S.-Iran tensions.

Lower oil prices bolstered U.S. bond markets across all maturities during the New York trading session. The 10-year U.S. Treasury yield dropped 9 basis points to 4.93%, after hitting a high of 5.02% on Wednesday following the Fed’s rate decision. Australian and New Zealand government bonds with similar maturities also opened higher in tandem with U.S. peers.

Market analysts noted that declining energy costs alleviate upward pressure on consumer inflation, giving central banks greater flexibility to assess the impact of monetary tightening and supporting both equity and fixed-income markets. Nevertheless, the sustainability of the current market relief remains dependent on further oil price movements. Uncertainty surrounding U.S.-Iran relations and upcoming diplomatic talks continues to cloud the outlook for global energy supply, leaving market conditions vulnerable to volatility.

Easing supply fears stem largely from Saudi Arabia’s supply recovery progress. The kingdom plans to restore roughly half the capacity of its critical east-west crude pipeline within days, after the facility was shut down by a drone attack last week. The expected recovery has significantly reduced risks of further supply disruptions stemming from Iran-related tensions, driving oil prices lower.

Geopolitical tensions also showed signs of easing. According to Reuters, China has mediated with Iran to contain activities by Tehran-backed Houthi militants in Yemen, which is expected to stabilize conditions around the Bab-el-Mandeb Strait — a vital shipping and energy transit chokepoint for global markets.

Global asset classes diverged notably. Gold prices rebounded sharply on Thursday, ending a three-day losing streak, while the Bloomberg Dollar Spot Index retreated, paring some of its post-Fed-hike gains.

In European markets, the Bank of England (BoE) delivered positive news for domestic bonds by scrapping its planned long-dated gilt sales under the quantitative tightening framework. The move relieved pressure on Britain’s beleaguered bond market, where 10-year and 30-year gilt yields had previously surged to their highest levels since 2007 and 1998 respectively. The BoE kept its benchmark interest rate unchanged at its Thursday policy meeting.

Japan entered a critical data and policy window. The nation’s inflation rate cooled for the first time in four months, largely thanks to government subsidies. The data was released hours ahead of the Bank of Japan’s policy meeting. Market surveys show all polled analysts expect the BoJ to raise its policy rate from 1% to 1.25% on Friday, with Governor Kazuo Ueda scheduled to hold a post-meeting press conference. The yen traded flat against the U.S. dollar, stabilizing around the 156.15 level.

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