Asian stocks rose sharply on Monday as markets cheered the U.S. and Iran agreeing to a preliminary peace deal, with Japanese shares hitting record highs before a Bank of Japan meeting this week.

Regional markets also took positive cues from a strong Friday finish on Wall Street, where rocket company SpaceX clocked stellar gains in its market debut. ESU26 rose 1.1% in Asian trade.

Focus this week is on a host of key central bank meetings, with the BOJ and Reserve Bank of Australia set to decide on interest rates on Tuesday. The Federal Reserve will also meet later this week. 

Asia stocks surge on US-Iran peace deal

South Korea’s KOSPI was the best performer in Asia, rallying 5.6% and coming back in sight of a record high.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes added 1.3% and 0.9%, respectively, while Hong Kong’s Hang Seng rose 0.4%. 

Singapore’s Straits Times index rose 1.2%, while futures for India’s Nifty 50 index added 1.7%. 

The U.S. and Iran said they had agreed to a memorandum of understanding to end their conflict and reopen the Strait of Hormuz, with a deal set to be signed by Friday.

The two will then engage in talks over Iran’s nuclear activities, with reports indicating that the U.S. could resume its attacks on Iran if no nuclear deal is reached. 

In this articleAXJO+1.25%JP225+5.33%HK50+0.45%NSEI+1.20%KS11+5.2%STI+1.11%SSEC+1.61%TOPX+3.03%CSI300+2.39%

Still, the MOU ramped up hopes for an immediate de-escalation in geopolitical tensions in the Middle East, with oil prices also falling sharply on the prospect of fewer supply disruptions. 

Lower oil bodes well for several major Asian economies, including India, Japan, and South Korea, given their heavy reliance on oil imports through Hormuz. 

Nikkei 225 hits record high; BOJ set to hike rates 

Japanese markets rallied in tandem with their Asian peers, with the Nikkei 225 and TOPIX adding 5.4% and 3.6%, respectively. 

Both indexes hit record highs, amid a rally in tech and non-tech sectors. 

But Japanese markets face an upcoming test, with the BOJ widely expected to hike interest rates by 25 basis points at the conclusion of a two-day meeting on Tuesday. 

The central bank has repeatedly signaled that it will consider raising rates in June, especially in the face of rising inflationary pressures due to the Iran war. 

Focus will be squarely on the BOJ’s outlook for the coming months, with ANZ analysts expecting a largely hawkish pivot. 

Beyond the BOJ, focus on Tuesday will also be on a Reserve Bank of Australia meeting, where the central bank is expected to leave rates unchanged. 

Australia’s ASX 200 jumped 1.3% on Monday.