Oil prices rose and stock markets pulled back slightly on Friday after the US and Iran exchanged fire in the Strait of Hormuz, although Asian markets remained on course for their strongest weekly performance in years on the back of an AI-driven rally.
Brent crude rose 1.3 per cent to $101.60 per barrel as the renewed Middle East hostilities unsettled markets that had spent much of the week pricing in a negotiated resolution.
Iran targeted three US destroyers with missiles, drones and small boats in the strait on Thursday, according to the US military, which said the attacks were successfully intercepted and none of the warships were damaged. Strikes were then carried out against Iranian military facilities, including launch sites and command and control centres, it claimed.
Iranian state media said the army and the navy exchanged fire with “the enemy” near Qeshm Island in the strait, while explosions were reported elsewhere.
President Donald Trump branded Iran’s leaders “lunatics” and warned that the US would “knock them out a lot harder, and a lot more violently” if they did not sign a deal to end the conflict “fast”.
“A normal country would have allowed these destroyers to pass, but Iran is not a normal country,” he posted on Truth Social. He nevertheless told reporters that the ceasefire was still in effect.
“They trifled with us today. We blew them away,” he said. “They have to understand – if it doesn’t get signed, they’re going to have a lot of pain.”
“It could happen any day,” the US president claimed when asked how close an agreement was, “and it might not happen.”
A further complication emerged this week when Lloyd’s List Intelligence reported that Iran had set up an agency, called the Persian Gulf Strait Authority, as the only valid authority to provide permission to vessels transiting the strait, and had begun emailing shipping firms an application form for passage. The firm said the move could be designed to ratchet up pressure on Washington.
The US and its Gulf allies are now seeking backing at the United Nations for a resolution condemning Iran’s stranglehold on the strait, though it faces a likely veto from Russia and China.
In spite of renewed hostilities in the Middle East, Asian stock markets enjoyed a good week, driven by surging demand for AI-linked chipmakers.
South Korea’s Kospi was heading for a weekly gain of 12 per cent, its largest since 2008, as Samsung and SK Hynix surged. Taiwan’s benchmark index was up 6.9 per cent for the week and Japan’s Nikkei 4.5 per cent, having hit a record intraday high on Thursday.
On Friday, however, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 per cent and the Kospi slipped as traders locked in profits, while the Nikkei was 0.4 per cent lower, dragged down by a fall in SoftBank shares after Arm Holdings warned of trouble securing supply for its new AI chip. S&P 500 futures rose 0.2 per cent.
“Despite ongoing hostilities and still-elevated oil prices, markets are pricing a limited duration,” Marija Veitmane, head of equity research at State Street Markets, told Reuters, noting that Asia and America were attracting the most buying at Europe’s expense.
European stock futures fell 0.7 per cent.
Investors are watching Friday’s non-farm payrolls report in the US, where jobs are expected to have increased by 62,000 in April after rebounding 178,000 in March. Local government elections across Britain are also in focus, with poor results expected for the ruling Labour Party.
“Gilts are already under scrutiny due to inflation risks and adding political uncertainty to the mix could further push global investors to look elsewhere,” ING analysts said.
Sterling held steady at around $1.36. The yen was at 156.9 per dollar, having struggled to sustain gains beyond 155 after suspected Japanese intervention to the tune of nearly $70 billion since last Thursday. The euro bought $1.1731 and the Australian dollar $0.7210. China’s yuan, Asia’s best-performing currency since the war broke out, was on the cusp of strengthening past 6.8 to the dollar, near the strongest level since 2023. The 10-year US Treasury yield held at 4.39 per cent, while Bitcoin was inching towards a sixth straight consecutive weekly gain at $79,460.
