Kospi and Nikkei 225 edge higher as oil, Fed fears cap Asia rally

Asian stocks edged higher on Friday, drawing some support from Wall Street’s overnight advance, but gains were restrained as investors weighed a fragile Middle East ceasefire, firmer oil prices and a further push-out in expectations for the first Federal Reserve interest-rate cut.

The tone across the region was one of caution rather than conviction, with traders reluctant to extend risk aggressively while tensions around Lebanon and the Strait of Hormuz remained unresolved.

South Korea’s Kospi climbed 1.68%, with the small-cap Kosdaq also advancing 1.14%, while Japan’s Nikkei 225 surged 1.75%, reflecting upbeat investor sentiment.

In contrast, Australia’s S&P/ASX 200 edged 0.31% lower, underperforming the regional trend. Chinese equities were modestly higher, with the CSI 300 gaining 0.6% and Hong Kong’s Hang Seng Index rising 0.88%

The underlying message from markets was straightforward: equities were willing to recover modestly after the previous session’s bounce, but not enough had changed on the geopolitical front to justify a broader relief rally.

Brent crude strengthened as tanker traffic through Hormuz stayed curtailed, according to market sources, keeping alive concerns that any disruption to shipping lanes could feed through into energy prices, inflation expectations and central-bank policy.

US stock futures were little changed in Asian trading after the S&P 500 rose 0.6% in the previous session.

That steadier lead helped Asian shares avoid a deeper retreat, but it did not materially improve sentiment.

Investors were instead left balancing two competing forces: hopes that diplomacy could prevent a wider regional conflict, and concern that reduced shipping activity through one of the world’s most important oil chokepoints would keep commodity markets tight.

Oil rise limits broader gains

Brent’s advance was one of the clearest market signals on Friday.

While higher oil prices supported energy producers and helped some resource-linked shares outperform, they also capped broader equity gains by reviving concern over the inflation outlook.

The Strait of Hormuz carries about 20% of global oil flows, making even partial restrictions a major source of market anxiety.

That dynamic left the regional picture mixed.

Energy and commodity names found support from firmer crude, while more growth-sensitive sectors struggled to build momentum.

Investors appeared willing to rotate selectively, but not to embrace a full risk-on move.

Fragile truce remains the key risk

For markets, the ceasefire is still better described as a pause than a resolution.

Investors have welcomed signs that diplomacy between the US and Iran could continue over the coming weeks; however, recurring concerns over Lebanon and shipping disruptions suggest the truce remains vulnerable.

Any evidence that attacks are intensifying again, or that tanker routes are becoming harder to reopen, could quickly push oil higher and reverse the modest recovery in equities.

That helps explain why the latest move in stocks has been measured.

Traders are treating the truce as a short-term stabiliser, not as confirmation that geopolitical risk has faded.

Fed cut bets move further out

The other notable shift came from the US rates market. After recent economic data, futures pointed to the Fed’s first rate cut arriving only in April 2027.

That marked a further repricing of the policy path and underscored how resilient US growth and sticky inflation continue to shape global market expectations.

For Asian assets, that matters because a later Fed pivot tends to support the dollar, lift Treasury yields and tighten financial conditions.

Even where regional shares rose, the gains reflected relief at the absence of immediate escalation rather than confidence that monetary conditions will soon ease.