GLOBAL MARKETS-Stocks surge, dollar at six-week high as US-Iran talks in focus

The worry for investors remains the near closure of the Strait of Hormuz, a critical artery for the world's energy supplies that has sent oil prices ‌soaring and rewired the global interest rate outlook because of inflationary concerns. U.S. Secretary of State Marco Rubio said there had been "some good signs" in talks to end the nearly three-month-old U.S.-Israeli war on Iran, but differences remain over Tehran's uranium stockpile and control of the strait.

Asian stocks rose on Friday, ​the U.S. dollar sat near six-week highs and oil prices were ‌volatile ​as investors hoped for a breakthrough in U.S.-Iran peace talks, although both sides remained at odds over key issues. The worry for investors remains the near closure of the Strait of Hormuz, a critical artery for the world's energy supplies that has sent oil prices ‌soaring and rewired the global interest rate outlook because of inflationary concerns.

U.S. Secretary of State Marco Rubio said there had been "some good signs" in talks to end the nearly three-month-old U.S.-Israeli war on Iran, but differences remain over Tehran's uranium stockpile and control of the strait. In stock markets, MSCI's broadest index of Asia-Pacific shares outside Japan was 0.8% higher, set for a modest weekly ‌rise. Japan's Nikkei gained 2.8%, just shy of a new record high, while Taiwan stocks rose 2.3%.

U.S. stock futures rose 0.36% and European futures gained 1%, poised for a ‌strong start as investor sentiment was improved by earnings from Nvidia this week, capping a robust set of results from big tech firms. Chris Weston, head of research at Pepperstone, said the news flow is gradually trending towards something tangible that markets can price with greater conviction.

"Although confidence levels are still not especially high," Weston said. Oil prices rose on Friday after dropping sharply as conflicting messages on the Iran talks kept investors guessing. Prices remain well above pre-war ⁠levels and ​are expected to remain elevated even if a ⁠resolution is unveiled.

Brent crude futures rose 1.9% to $104.56 a barrel but were set for a 6% drop for the week. U.S. West Texas Intermediate futures were up 1.35% at $97.64. Prolonged energy disruptions as the war drags on ⁠threaten to feed through to prices across the globe, spurring traders to price in rate hikes in developed and emerging markets.

Markets are now pricing in possible rate hikes from the U.S. Federal Reserve by the ​end of the year versus expectations of two rate cuts before the war. "We’re seeing an unusually strong linkage between oil prices and global rates, reflecting how broad-based and ⁠borderless this shock has become," said Mitch Reznick, head of fixed income at Federated Hermes.

"What initially appeared to be a shift in inflation expectations is now feeding directly into realised inflation, reinforcing the view that central banks will need ⁠to ​keep policy tighter for longer to restore price stability." That has lifted Treasury yields and boosted the dollar, which has also benefited from safe-haven demand. The euro was at $1.1614, close to the six-week low it hit on Thursday and is set for a 1% drop this month.

Against a basket of currencies, the dollar was at 99.247. The Japanese yen last fetched 159.11 ⁠per dollar, perilously close to the crucial 160 level that traders fear could bring Japanese authorities into the market again. The renewed weakness in the yen follows an intervention, worth an ⁠estimated $65 billion, from Tokyo just weeks ago to shore ⁠up the currency.

Data on Friday showed Japan's core inflation slowed to a four-year low in April, complicating the outlook for the Bank of Japan's rate-hike path. ING senior economist Min Joo Kang said the stronger-than-expected first quarter GDP and firm April exports data earlier this week showed ‌the resilience of the Japanese economy ‌despite the energy shocks, which supported a Bank of Japan hike.