Iran retaliation falls short of rhetoric – RBA hikes again as expected

Asia market update: Iran retaliation falls short of rhetoric; RBA hikes again as expected; Asia EM currencies under pressure during CN hols; US ISM Services PMI tonight.

General trend and developments

-Some shipping sources reported around 9 ships passed the Strait of Hormuz overnight as the US’s Project Freedom got underway. Among them a South Korean-operated cargo ship experienced an explosion in engine room (no casualties reported and the incident later reported as not war-related). Two US-flagged ships made it through without incident, taking a path close to the Omani coast. US press later confirmed a Maersk, US-flagged carrier exited the Strait of Hormuz under US escort.

-Markets now watching to see if Iran manages to escalate levels of retaliation as per its earlier rhetoric, after US reported destroying six small ‘fast boats’ overnight and Iran firing several missiles and drones at the UAE. All missiles were intercepted but one drone caused damage and injuries at a UAE refinery. Iran’s retaliation against its neighbors may have sealed the IRGCs fate in the coming days, with reports that both UAE and Saudi Arabia are preparing their armed forces for potential retaliation. Two US destroyers confirmed to have passed through the Strait on Monday without being struck, although reports they both “faced threats“ during their passage.

-Australia's RBA hiked for a third straight time, as expected. Going forward, the RBA suggested it will allow recent aggressive policy tightening to work its way through the economy in the face of Iran war-related uncertainty, with a hike possible later in 2026.

-Philippine Peso weakened further after much worse than expected inflation figures, with annualized CPI at 7.2% for April, and Core CPI more than double estimates at 2.6%. Indonesia Rupiah also fell to a fresh record low as Indonesia Q1 GDP as expected fell to contraction of close to 1%.

-Asian EM currencies overall under pressure, with Indian Rupee also hitting record lows.

-Thai govt also announced it will issue an emergency decree of around THB450B to boost the economy [similar amount to last year's THB450B Digital Wallet handout to ~40M Thai consumers].

-In the lead up to the Trump-Xi Summit, slated for mid-May in Beijing (no dates yet confirmed from China), China Ministry of Commerce hit back against US secondary sanctions, issuing its first-ever injunction under the 2021 anti-foreign sanctions rules, ordering Chinese companies not to comply with fresh US sanctions on five refiners accused of importing Iranian oil and allowing affected firms to sue for damages in Chinese courts if they suffer losses from following U.S. rules.

-White House may vet future AI models prior to public release. Reportedly the proposed framework would involve multi-agency review of models for security threats and potential cyber-capabilities, with the NSA likely taking the lead role. Such a move is being driven by concerns over advanced models capable of identifying network vulnerabilities.

-Bitcoin attacked the $81K handle, edging out yesterday’s more than 3-month highs following likely compromise in the US Senate on the crypto-focused Clarity Act.

-Westpac H1 beat on last year’s numbers for Net, NII and Net Ops. As per other Australian lenders in their outlooks, Westpac backed up its mid-April warning of the war in the Middle East presenting challenges for some customers and the economic impact of the conflict will continue through the year, with disruption to energy supply chains driving a rise in prices.

-Press reports that Apple may be exploring using Intel and Samsung to build its ‘main’ device processors, even though it sees challenges in either company catching up to TSMC.

-Nanya Technologies (2408.TW), a leading DRAM manufacturer in Taiwan, again saw massive Revenue increase; April revenues were up 717% y/y, following March revenues up 560% y/y. Comes soon after the company reportedly entering Nvidia’s Vera Rubin supply chain. [Nanya has been following a growth track similar to AI chip memory makers SK Hynix and Samsung of South Korea since late last summer].

-Taiwan Pres Lai defied Chinese pressure to arrive back from a trip to the African nation of Eswatani, Taiwan’s last diplomatic ally in the continent. Upon finding out of the trip yesterday (which had been cancelled in April due to CCP pressure), China blasted the trip as "stowaway-style escape farce", while Lai himself said that Taiwan's people have the right to go out into the world and Taiwan will not shrink back because of suppression [likely referring to China].

-Much as Amazon democratized hosting of web services 20 years ago with AWS (Amazon Web Services), overnight Amazon now aims to do the same for global logistics, with ASCS (Amazon Supply Chain Services), enabling businesses around the world to leverage the efficiency and scalability of Amazon’s global logistics network for their own business. UPS, Fedex and other shippers lost ~10% or more on the news.

- US equity FUTs +0.1% to +0.2% during Asia trading.

Looking ahead (Asian-weighted focus, using Asian time zone)

-Tue May 5th: (Tue night, US Apr ISM Services PMI, US Mar JOLTS).

-Wed May 6th: NZ Q1 Unemployment Rate, KR Apr CPI, CN Apr RatingDog Services PMI.

-Thu May 7th: JP BOJ Minutes, AU Mar Trade Balance, PH Q1 GDP, MY Rate Decision.

-Fri May 8th: JP Mar Labor Cash Earnings, (Fri night, US Apr Nonfarm Payrolls, US prelim May Michigan Consumer Sentiment).

-Sat May 9th: CN Apr Trade Balance.

Holidays in Asia this week

-Mon May 4th: China, Japan, Thailand.

-Tue May 5th: China, Japan, South Korea.

-Wed May 6th: Japan.

Headlines/economic data

Australia/New Zealand

-(AU) ASX 200 opens -0.6% at 8,642.

-(AU) Reserve Bank of Australia (RBA) raises cash rate target by 25bps to 4.35%; As expected.

-(AU) RBA Statement on Monetary Policy (SOMP).

-(AU) Australia Mar Household Spending M/M: 1.6% v 1.8%e; Y/Y: 6.3% v 6.1%e.

-(AU) Australia Apr Final PMI Services: 50.7 v 50.3 prelim (confirms move back into expansion).

-(AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: 67.2 v 67.8 prior.

-(NZ) New Zealand Apr ANZ Commodity Price M/M: -0.8% v +4.2% prior.

China/Hong Kong

-(CN) Shanghai Composite closed for 'Labor Day' holiday (reopens Wed May 6th); (HK) Hang Seng opens -0.6% at 25,946.

-(CN) China targets 70% advanced domestic silicon wafer use by 2026; companies mentioned include Eswin – Nikkei sources.

-(CN) Chinese start-up 'ZYT' considers mass production of semi-autonomous trucks this year - SCMP.

-(CN) China Pres Xi: Authorities need to "thoroughly investigate" fireworks blast - China press.

Japan

-(JP) Nikkei 225 closed for the 'Children's Day' holiday (reopens Thu May 7th).

-(JP) Japan Finance Ministry official cited rule stating three days of intervention to count as a single operation – US financial press.

Korea

-(KR) Kospi closed for the 'Children's Day' holiday (reopens Wed May 6th).

-(KR) Follow Up: South Korea Foreign Ministry: To investigate cause of fire on ship in Strait of Hormuz after vessel is towed to port.

Other Asia

-(ID) Indonesia Q1 GDP Q/Q: -0.8% v -1.0%e; Y/Y: 5.6% v 5.4%e.

-(ID) IDR currency (Rupiah) said to make fresh record lows against the USD.

-(ID) Bank of Indonesia (BI): Continues optimizing interventions in onshore, offshore markets to stabilize Rupiah [comments after the IDR hit a fresh record low vs the USD earlier today ahead of Q1 GDP data].

-(PH) Philippines Apr CPI M/M: 2.6% v 1.2%e; Y/Y: 7.2% v 5.5%e.

-(PH) Philippine Peso weakens further to PHP61.70/USD.

-(TW) Taiwan President Lai to arrive back in Taiwan from visit to Eswatini, Africa; to hold press conference at 10:40am local time at airport.

-(TW) Taiwan President Lai: Successfully completed diplomatic mission to Eswatani - press conference at Taiwan airport after visiting Eswatini, Africa.

-(IN) Indian Rupee falls to a 'fresh' record low against the dollar to INR95.31/USD.

-(TH) Thailand Apr PMI Manufacturing: 52.7 v 54.1 prior (12th month of expansion).

North America

-(US) Treasury Quarterly Financing Estimates: To borrow $189B in Apr-June Quarter v $150Be and $109B prior estimate; July-Sep to borrow $671B v $700Be [US Market Close].

-(US) Fed's Kashkari (voter) noted that he did not feel comfortable signaling that a rate cut was in the cards; in the- in worse scenarios, might have to go the other direction [US Market Close].

-(US) Feds Williams (moderate, voter): Longer-term outlook still suggests eventual rate cuts will happen; Not seeing any data that would argue for a rate hike; Rates will need to be lowered 'at some point' [US Market Close].

-(US) US President Trump: [On whether Iran ceasefire is over] Can't tell you that; Iran war can go on for another two to three weeks - Salem News Channel.

-(US) Defense officials confirm two US Navy destroyers transited the Strait of Hormuz without being struck [timing uncertain] - CBS News.

-(US) Sec of State Rubio to hold press briefing at 3pm ET, Tuesday May 5th, 2026 - US financial press.

-(US) Follow up: Supreme Court fast-tracks activation of voting rights ruling in its Louisiana redistricting mandate (decision came out last week) - BLAW.

-(CO) Ecuador to reduce tariffs on Colombia imports to 75%, effective from Jun 2026.

-(AR) Argentina Apr Government Tax Revenue (ARS): 17.400T v 16.071T prior.

Europe

-(UK) UK Downing Street: UK PM says UK will continue to support defense of partners in Gulf.

-(UK) UK Chancellor Reeves reportedly 'rowed' with Bessent over Iran war criticism last month - FT.

-(EU) ECB’s Nagel (Germany): We stand ready to act at anytime; Wait and see approach is not hesitation [US Market Close].

-(NO) US to announce Norway's inclusion in the 'Pax Silica' group to counter China [Finland joined the initiative back in Apr] - Semafor.

Middle East

-(IR) President Trump announced US would start guiding ships out of the Strait of Hormuz on Monday, May 4th [US Market Close].

-(IR) US Pres Trump: Iran will be 'Blown off' if it attacks US ships - Fox interview [US Market Close].

-(IR) President Trump rejected Iran’s latest proposal as unacceptable (Reminder: Iran proposed 1 month deadline for two sides to reach an agreement on a permanent end to the war with a 2nd stage to discuss Iran’s nuclear program; plan required both sides to lift their blockades of the Strait of Hormuz, completely end the war in Lebanon, release Iran’s frozen assets, US to pay compensation, lift sanctions against Tehran) [US Market Close].

-(IR) 'Project Freedom' said not to involve US navy ships escorting vessels; Project Freedom would be a coordination mechanism for countries, insurance companies and shipping organizations to move traffic through the Strait of Hormuz [US Market Close].

-(IR) US CENTCOM chief Admiral Cooper: US has opened a 'free lane' in the Strait of Hormuz for free passage of ships; Iran has tried but failed to interfere by firing at commercial ships; 6 small Iranian boats destroyed [US Market Close].

-(IR) US Treasury Sec Bessent stated that US pressure was crippling Iran’s economy, with oil storage filling up and wells potentially shutting soon [US Market Close].

-(IR) Follow up: Iranian Media: US targeted two civilian boats carrying goods towards Iran, not IRGC speedboats; Five civilians killed.

-(IR) Iran Foreign Min Araqchi: US and UAE should be wary of being dragged into a quagmire - post on X.

Levels as of 01:20 ET

Nikkei 225 +0.4%; ASX 200 -0.4%; Hang Seng -1.3%; Shanghai Composite +0.1%; Kospi +5.1%.

Equity S&P500 Futures +0.1%; Nasdaq100 +0.2%; DAX -0.4%; FTSE100 -1.1%.

EUR 1.1699-1.1677; JPY 157.30-157.15; AUD 0.7171-0.7143; NZD 0.5876-0.5857.

Gold +0.3% at $4,536/oz; BTC +1.1% at $80,901, Crude Oil -2.0% at $104.32/bbl; Copper +0.5% at $5.8918/lbs.