Asian stock trade lower despite progress in US-Iran peace talks; Japan's Nikkei rallies 2%

Asian stocks kick off the new week on a downbeat note, though signs of progress in US-Iran pace negotiations eased concerns over a potential escalation in geopolitical tensions and limited deeper losses. At the time of writing, South Korea’s KOSPI is seen treading water, while Hong Kong’s Hang Seng and Indonesia's IDX Composite are trading with a loss of over 1% for the day.

Meanwhile, Japan's Nikkei 225 surged over 2% as the sentiment got a boost after mediators Qatar and Pakistan announced a formal 60-day roadmap aimed at securing a final US-Iran peace deal. This eases fears over a breakdown in diplomatic efforts, led by the closure of the Strait of Hormuz on Saturday and US President Donald Trump's threats of military action against Iran if Hezbollah continued attacks on Israel.

Iran announced that it had closed the strategic waterway again after accusing the US and Israel of violating the ceasefire. Iran added that the decision came over the continued Israeli strikes in Lebanon. This underscores the fragility of the diplomatic process and keeps the geopolitical risk premium in play. Apart from this, the US Federal Reserve's (Fed) hawkish tilt continues to undermine investors' appetite for riskier assets.

In fact, traders ramped up their bets that the US central bank will deliver at least one 25-basis-points (bps) interest rate hike in 2026 following the Fed's forecast that it will need to raise the polity rate if inflation remains sticky. Nevertheless, all eyes remain on the US-Iran headlines, which might continue to infuse volatility across the global financial markets.