Asia-Pacific government bonds rose alongside US Treasury futures as falling oil eased inflation fears after Washington reported progress in diplomatic efforts to end the war with Iran. Australian and New Zealand sovereign bonds rallied, with 10-year yields in both countries down at least three basis points.
Futures on US equity indices remained near record highs. The MSCI Asia Pacific index was up 0.1% after earlier gains of as much as 0.5%. South Korea's Kospi, a barometer for AI investment sentiment, pared gains to 1.9%, while Hong Kong's tech index slid by 1% and Alibaba shares fell by 3%.
Brent is on track for its longest losing streak in a year after President Donald Trump called a meeting between US officials and Iranian representatives "very good," confirming Washington has renewed efforts to end the conflict. Oil dipped by 1.1% to roughly $98.20/bbl, heading for a sixth straight session of declines. It's this diplomatic dynamic, not macro statistics, that is driving market sentiment now. Traders are focused on Iran-related headlines as the main signal for whether oil will keep falling and, with it, bond yields that spiked to multi-year highs earlier this month.
Meta Platforms' new AI agent, Muse, remains center stage, triggering a 7.1% jump in Shopify shares after the companies announced a partnership. The US dollar index extended gains for a fourth straight session, up 0.1%, as investors tuned into Fed speakers who have been sending clear signals about further rate increases. Gold slipped by 0.4% to about $4,345/oz, while Bitcoin held near $86,600.
A separate theme this week — the upcoming summit between US President Donald Trump and China's Xi Jinping — adds uncertainty even without the Iran factor. Trump will host Xi in Washington in a visit that feels more about protocol than policy, and market expectations for breakthroughs on long-running trade disputes between the world's two largest economies are muted.
In my view, the key fork in the road over the coming days is not the Trump-Xi meeting, from which the market does not expect much, but whether Iran-related progress is confirmed by concrete steps rather than optimistic rhetoric about a "very good" meeting. If diplomacy advances, I wouldn't rule out oil falling toward $90/bbl or lower, which would drag bond yields down as well. Any breakdown in talks could quickly reverse oil, gold, and the dollar, especially given already thin pre-holiday liquidity in Asia.
Technically, the S&P 500 chart indicates that the immediate task for buyers is to overcome the resistance level of $7,774 to demonstrate upside and open a path to $7,793. Maintaining control above $7,810 would further strengthen the bulls' case. On the downside, buyers must defend $7,756. A break below that level would likely push the index to $7,737 and open the way to $7,718.
