The US-Israel-Iran conflict, now entering its third month, continues to dominate macro sentiment, with the US naval blockade of Iran extended indefinitely and Brent crude hovering near $120 per barrel despite Wednesday's sharp 5.3% single-session pullback. US 30-year Treasury yields have surged above 5% — up 40 basis points since the war began — as energy-driven inflation compounds already-sticky core price pressures and persistent fiscal deficits, eroding the traditional bond-as-hedge narrative. Kevin Warsh's imminent confirmation as Fed Chair has prompted Treasury markets to price in a 2026 rate hike, while Fed Governor Waller has publicly flagged even odds between a hike and a cut, underscoring the deep policy uncertainty facing markets. Geopolitical noise around US-Iran deal talks remains deliberately ambiguous, keeping risk appetite in a narrow channel ahead of any Strait of Hormuz resolution.
For Asia-Pacific markets opening Thursday, the cross-asset picture is mixed but skewed cautious. The ECB's Financial Stability Review overnight issued an unusually direct warning that equity valuations remain stretched by historical standards and that a sudden, significant correction risk is elevated — a signal that is reverberating into Asian open sentiment. Australia's April CPI print delivered a constructive headline at 4.2% year-on-year versus 4.6% prior, but the trimmed mean ticked higher to 3.4%, reinforcing RBA tightening expectations and capping relief for rate-sensitive ASX sectors. The KOSPI's 2.25% surge stands out as a regional outlier, while losses in Shanghai (-1.25%), Hong Kong (-1.06%) and Singapore (-0.82%) reflect ongoing China demand uncertainty and the drag from elevated global bond yields on Asia ex-Japan risk assets.