Investors also remained cautious ahead of key US data releases later this week, including the final estimate of Q1 GDP and the May PCE Price Index, both of which could influence expectations for the Federal Reserve’s next policy move after it kept interest rates on hold last week.

Softer oil prices helped cap the market’s downside by easing some inflation worries. Among the weakest performers were Meridian Energy (-2.5%), Summerset Group (-2.3%), Hallenstein Glasson (-1.4%), and F&C Investment Trust (-1.1%). Chorus and Contact Energy each slipped 0.8%, while Ebos Group edged down 0.6%.

Moreover, inflation strengthened in mining and quarrying (11.9% vs 9.3%), in electricity, gas, steam and air-conditioning supply (17.9% vs 1.0%), and in water supply, sewerage, waste management, and remediation services (10.1% vs 6.6%). On a monthly basis, producer prices advanced 1.3% in May, following a 1.2% increase in April.

The rupee’s losses were partly offset by a sharp decline in oil prices, with Brent crude dropping below $77 per barrel and falling roughly 16.5% over the month. The retreat in energy prices has been underpinned by indications that tanker traffic through the Strait of Hormuz is gradually normalizing. The currency also found some support from improving capital flows: foreign investment into Indian debt has picked up, while outflows from the equity market have eased relative to earlier months.

At the same time, the US dollar held relatively firm as investors continued to reassess the outlook for US monetary policy. Domestically, the Bank of Korea reiterated a hawkish tone, indicating that higher interest rates may be warranted at an appropriate time, with rising housing prices, mounting household debt, and increased leveraged investments heightening risks to financial stability.

Losses in the won were partly contained by a pullback in oil prices, as easing concerns over potential disruptions to energy supplies through the Strait of Hormuz offered some relief to South Korea’s energy-importing economy.

At the stock level, Indian Railway Finance Corporation slipped 5.4% after reports of a planned government stake sale, while Wipro was in focus following the expansion of its cybersecurity partnership initiatives. Meanwhile, JPMorgan downgraded HCL Tech, Wipro, and Tata Tech, cautioning that AI-driven disruption, restrained enterprise spending, and geopolitical uncertainty could continue to cap growth across India’s IT sector. Among the notable gainers were KPR Mill, up 12.6%, Roto, up 8.5%, and JSW Infrastructure, which rose 4.4%.

Additional downward pressure on the yuan came from the People’s Bank of China, which has been setting the daily reference rate at weaker-than-expected levels. On Wednesday, the central bank fixed the yuan at 6.8195 per dollar, extending its longest stretch of softer fixings since April 2025.

At the same time, China has effectively suspended certain tungsten exports to Japan, while shipments of rare-earth magnets fell to a one-year low in May, when Beijing first implemented its global export-control regime. These restrictions have remained in place amid heightened tensions following Taiwan-related comments by Japanese Prime Minister Sanae Takaichi.

Domestically, investor caution increased ahead of June’s inflation data due next week, amid concerns that elevated food prices could keep overall price pressures high. Annual inflation accelerated to 3.08% in May from 2.42% in April, driven by rising staple food costs and higher logistics expenses.

At the same time, Indonesia’s trade surplus narrowed in April to its smallest level since 2020, diminishing support from export-driven foreign exchange inflows. Market sentiment was further weighed down by reports that major Japanese automakers may shift part of their production to Vietnam, stoking worries about future investment, employment, and the manufacturing outlook.

Even so, expectations of continued policy tightening by Bank Indonesia— which has raised interest rates by a cumulative 100 basis points since May—helped to limit the rupiah’s losses.

At the same time, progress in ongoing U.S.–Iran peace talks has improved shipping flows through the Strait of Hormuz, bolstering expectations of a quicker recovery in global supply and putting additional downward pressure on crude oil. Because corn is a key feedstock for biofuel, its prices often move in tandem with crude oil.

A firm U.S. dollar further undercut the market by making American commodities more expensive for overseas buyers. Still, strong export demand offered some support: the USDA reported private sales of 100,000 metric tons of corn to Mexico, including 30,000 tons for delivery in the 2025/26 marketing year and 70,000 tons for delivery in 2026/27.

In Indonesia, the world’s largest palm oil producer, the B50 biodiesel mandate is scheduled to take effect on July 1, reinforcing expectations of stronger domestic consumption. At the same time, India’s palm oil imports are forecast to exceed 600,000 tonnes in June, up from 549,356 tonnes in May, underscoring resilient demand from the world’s biggest buyer.

Upside momentum, however, was limited by weaker crude oil prices, as easing worries about potential disruptions in the Strait of Hormuz pressured the broader energy complex. Separately, Malaysia lowered its July crude palm oil reference price while maintaining its export duty at 10%.

In response, Bank Negara Malaysia signaled that it would intensify measures to stabilise the currency, including initiatives to attract foreign capital inflows and to encourage state-linked enterprises and corporates to repatriate overseas earnings. The central bank also stressed that the latest capital outflows largely reflected portfolio rebalancing following earlier gains in the ringgit, rather than any weakening in Malaysia’s economic fundamentals. The country’s underlying economic profile is still assessed as strong, and the onshore foreign-exchange market continues to operate smoothly.

The conflicting inflation signals have left markets divided, with futures pricing in roughly a 50% probability of another rate hike, now seen as more likely later in the year than at the August meeting. At the same time, progress in ongoing US–Iran peace talks and increased shipping traffic through the Strait of Hormuz have helped ease inflation worries. A persistently hawkish outlook for US interest rates has also supported the relative performance of Australian bonds versus US Treasuries, putting additional downward pressure on the yield premium of Australian debt over its US counterparts.

The Bank of Japan’s Summary of Opinions from its June meeting indicated that policymakers generally viewed additional interest rate hikes as appropriate, pointing to the gradual rise of underlying inflation toward the 2% target and the persistence of accommodative financial conditions.

Last week, the central bank raised its policy rate by 25 basis points to 1%, aiming to curb inflationary pressures and lend support to the weakened yen.

At the same time, progress in talks between Washington and Tehran has increased traffic through the Strait of Hormuz, alleviating strains in global energy markets and helping to ease inflation concerns.

On the domestic front, sentiment was buoyed by government plans to relaunch consumer stimulus in the second half of the year to bolster economic activity amid ongoing global uncertainty. Externally, U.S. futures inched higher after a tech-led selloff on Wall Street overnight, while easing tensions in the Strait of Hormuz brought oil prices closer to pre-conflict levels.

Gains were led by industrials, financials, and healthcare, which helped counter weakness in transport, consumer cyclicals, and property. Notable outperformers included Surya Citra Media (up 3%), Astra International (2.4%), Semen Indonesia (1.7%), and Perusahaan Gas Negara (1.3%).

Having raised interest rates three times this year, the Reserve Bank of Australia left the cash rate unchanged this month but reiterated that it would not hesitate to tighten further if inflation remains above its 2.5% target. The mixed inflation data have left markets divided, with pricing indicating roughly a 50% probability of another rate hike, now seen as more likely later in the year than at the August meeting. Meanwhile, the Aussie fell 1.2% in the previous session, as a tech-led global equity selloff spurred risk aversion.

The yen remained under pressure from a stronger dollar and the wide interest rate differential between the US and Japan. Markets have also grown increasingly skeptical about Tokyo’s willingness to undertake further currency intervention, after a record-sized operation nearly two months ago sharply reduced foreign exchange reserves.

Meanwhile, the Bank of Japan’s Summary of Opinions from its June meeting indicated that policymakers generally supported continued interest rate hikes, pointing to underlying inflation’s progress toward the 2% target and financial conditions that remain broadly accommodative.

Risk appetite has also deteriorated, with a shift in sentiment against semiconductor and AI-related stocks contributing to broader market declines.

Meanwhile, the Reserve Bank of New Zealand is widely expected to raise interest rates by 25 basis points at its July meeting, and the Official Cash Rate (OCR) is forecast to reach 3.35% by the end of next year.

China has effectively halted exports of certain tungsten products to Japan this year, and shipments of rare-earth magnets in May fell to their lowest level since May 2025, when Beijing first introduced its global export-control regime. The measures, which also cover dysprosium and terbium, have remained in place amid a diplomatic dispute triggered by Japanese Prime Minister Sanae Takaichi’s remarks on Taiwan last November.

Leaders of Asia’s two largest economies are expected to attend the Asia-Pacific Economic Cooperation forum in Shenzhen, though the outlook for a bilateral meeting is still uncertain. On the corporate front, notable decliners included Zijin Mining Group (-1.2%), Foxconn Industrial Internet (-1.5%), and NAURA Technology (-2.7%).

Sentiment was also bolstered by continued enthusiasm for artificial intelligence and semiconductor-related plays. Interest in AI exposure remained strong after a leveraged ETF tied to SK Hynix became Hong Kong’s largest ETF by assets. Still, upside was limited by persistent caution over the trajectory of US interest rates and lingering doubts about the pace of China’s economic recovery.

Among notable movers, Tencent gained 1.0%, Knowledge Atlas jumped 8.9%, SMIC advanced 3.2%, and Xiaomi rose 1.7%.

Additional notable risers included HD Hyundai Heavy Industries (up 1.4%), Hanwha Ocean (1.7%), Kia Corporation (1.3%), and Doosan Enerbility (0.8%). Overall risk sentiment improved as well, helped by a pullback in oil prices after worries about supply disruptions in the Strait of Hormuz eased.

Separately, MSCI decided to keep South Korea in its emerging-market category, citing persistent issues with foreign-exchange market accessibility and thereby postponing the country’s potential upgrade to developed-market status.

The moderation was driven largely by goods inflation, which eased to 4.2% from 4.7%. Transport costs rose at their slowest pace in three months (3.3% vs 6.6% in April), as automotive fuel prices recorded their smallest increase since February (7.7% vs 18.6%). Inflation also eased in health (3.8% vs 4.0%) and recreation (2.4% vs 2.5%).

By contrast, price growth accelerated for food and non-alcoholic beverages (3.3% vs 2.8%) and housing (6.5% vs 6.3%). Services inflation also edged higher, rising to 3.7% from 3.5%.

Core inflation measures firmed. The trimmed mean CPI rose 3.6% year-on-year, the highest rate since September 2024 and above expectations of 3.5%. The weighted median CPI also increased 3.6%, up from 3.5% in April.

On a monthly basis, headline CPI fell 0.7% in May, marking the first decline since August 2025 and exceeding the anticipated 0.3% drop.

U.S. equity futures were also subdued after a sharp selloff in technology and semiconductor stocks dragged Wall Street lower overnight. On the local market, gains in technology services, consumer, healthcare, and commercial stocks helped offset weakness in both energy and non-energy mineral names.

Among early movers, Lynas Rare Earths advanced 2.5%, CSL Ltd. climbed 2.3%, and Aristocrat Leisure rose 1.5%. Two of the four major banks also posted modest gains. On the downside, Genesis Minerals fell 3.6%, Greatland Resources lost 3.5%, Insurance Australia Group declined 2.2%, and Perseus Mining slipped 1.4%.

Domestically, the Bank of Japan’s Summary of Opinions from its June meeting indicated that most policymakers favor a continued path of interest rate hikes. They cited underlying inflation moving closer to the BOJ’s 2% target and noted that overall financial conditions remain accommodative.

On the geopolitical front, progress in US–Iran peace talks has supported an increase in shipping traffic through the Strait of Hormuz, easing pressure on global energy supplies and tempering inflation worries.

Among notable laggards, Fujikura dropped 2.7%, Tokyo Electron lost 2.2%, Furukawa Electric fell 1.7%, Disco Corp slipped 2.2%, and Sumitomo Electric declined 1.6%.