Cautious Start for Asia Markets as Oil Prices Climb Amid US-Iran Talks

Market Overview and Economic Insights

By Scott Murdoch

Asian Market Performance

SYDNEY, Feb 17 (Reuters) - Asian financial markets were treading carefully on Tuesday in holiday-thinned trading, but oil pushed higher with U.S and Iran nuclear negotiations in Geneva due to begin later in the day.

Oil Price Movements

Mainland Chinese, Hong Kong, Singapore, Taiwan and South Korea markets were closed on Tuesday for Lunar New Year holidays. U.S markets were shut on Monday for Presidents' Day.

Economic Indicators from Japan

Japan's Nikkei was down 0.5% and the broader Topix slid 0.2% to 3,779.29.

Central Bank Policies

In Australia, the S&P/ASX200 was trading almost 0.5% higher.

Ten-year Treasury yields slipped 1 basis point to 4.044% on Tuesday, hitting the lowest since early December. Japan's five-year yield fell 2 basis points to 1.65%, its lowest since February 2.

In early Asian trading hours, Nasdaq futures were down 0.1% and S&P 500 futures up 0.2%.

The dollar index, a measure of the U.S. currency against major rivals, was last flat at 97.07, after a small gain of 0.2% overnight.

Japan's weakening economy remained in focus on Tuesday, one day after much softer than expected GDP numbers.

The country on Monday reported its economy grew an annualised 0.2% in the fourth quarter, far below the 1.6% gain forecast as government spending dragged on activity. On Tuesday, The Japanese yen strengthened 0.15% against the greenback to 153.28 per dollar.

The weak figures highlight the challenges ahead for Prime Minister Sanae Takaichi and should support her push for more aggressive fiscal stimulus, economists said.

The BOJ next meets on rates in March, with traders forecasting only a slim chance for a hike. Economists polled by Reuters last month expected the central bank to wait until July before tightening policy again

"The market has likely assumed that softer GDP data in the fourth quarter will encourage PM Takaichi's plans to offer additional fiscal support and reduce the sales tax on food," NAB analysts wrote in a research note.

"Pricing for BoJ rate hikes nudged a little lower post the GDP data, with only 4 basis points priced for the March meeting and 16 basis points priced for April."

Australia's central bank said on Tuesday it had concluded inflation would stay stubbornly high if it had not hiked interest rates as it did this month, and was not yet sure if further tightening would be necessary.

Oil prices were higher ahead of U.S.-Iran talks aimed at de-escalating tensions against a backdrop of expected OPEC+ supply increases.

U.S. West Texas Intermediate crude was up 1.29%. Brent crude futures rose 1.33% overnight.

Iran's Revolutionary Guards navy held a drill in the Hormuz Strait on Monday, the semi-official Tasnim news agency reported, a day prior to renewed Iran-U.S. nuclear negotiations. The passage accounts for about 20% of global oil shipments.

"The market remains unsettled by geopolitical uncertainties, with investors cautious due to the pending US-Iran and Ukraine negotiations this week," ANZ analysts said.

"Speculative positions have been increasing in recent weeks. If tension in the Middle East eases or meaningful progress is made on the Ukraine war, the risk premium currently built into oil prices could swiftly unwind."

Gold was down 0.85% at $4949.5 per ounce as a higher dollar on Monday made greenback-priced bullion more expensive for holders of other currencies. Spot silver was 2% lower.

(Reporting by Scott Murdoch; Editing by Kim Coghill)