Asian equity markets retreated from record highs on Thursday as a renewed spike in oil prices rattled investor sentiment. Despite a record-breaking session on Wall Street overnight, MSCI’s broadest index of Asia-Pacific shares turned 0.5% lower.

Asian Shares Slip From Record Highs as Oil Surges to $103 Amid Hormuz Shipping Woes

Asian shares retreated from record highs on Thursday as oil prices extended their gains on renewed shipping woes in the Gulf, underscoring fragile risk sentiment as a peace deal eludes the U.S. and Iran.

European stocks are bracing for a much weaker open, with pan-region futures down 1.1%. Wall Street futures also skidded 0.5% in Asia.

Overnight, the S&P 500 climbed 1% and the Nasdaq jumped 1.6% to notch fresh record-closing highs, helped by a strong start to the earnings season that has eased concerns about the health of the U.S. consumer despite rising energy prices from the Iran war.

MSCI's broadest index of Asia-Pacific shares outside Japan had earlier tracked Wall Street and rallied to a record of 831.56 points, but selling soon kicked in. It was last down 0.5%.

Japan's Nikkei vaulted to a new high for a second day before falling 0.9%. Markets in Taiwan and South Korea also hit new highs and then turned lower.

China's blue chips fell 0.8% and Hong Kong's Hang Seng index skidded 1.1%.

Higher oil prices were partly to blame, with Brent crude futures up another 1.4% on Thursday to $103.3 a barrel, having jumped 3.5% overnight to cross back above $100.

Iran on Wednesday captured two container ships seeking to exit the Gulf via the Strait of Hormuz, tightening its grip on the crucial waterway, as investors watch if the fragile ceasefire in the Middle East will hold.

"Markets look very on edge here. We are still in a no-war, no-peace zone, and that means even an unverified scare of escalation can jolt oil and knock risk assets lower," said Charu Chanana, chief investment strategist at Saxo.

"Oil’s jump, even without a single clean trigger, is the giveaway that investors remain highly sensitive to geopolitical tail risk."

Overnight on Wall Street, shares of GE Vernova surged 13.75% after the power equipment maker raised its annual revenue forecast on the AI boom, and Boeing advanced over 5% after a smaller-than-expected quarterly loss.

Electric automaker Tesla reported a surprise positive free cash flow in the first quarter, but its projection of sharply higher spending plans on AI and robotics drew scepticism from investors, with its shares down 2% after the bell.

Treasury yields rose with oil prices. The two-year U.S. Treasury yield rose 2 basis points to 3.8106%, after inching up 1 bp on Wednesday. The 10-year yield increased 3 bps to 4.3214%, after finishing little changed overnight.

Currencies were mostly calm, with the dollar holding onto small gains from overnight. The euro was steady at $1.17, just above a 10-day low of $1.1691, having lost 0.3% overnight.

The risk sensitive Australian dollar slipped 0.2% to $0.7147.

"Markets have been remarkably effective at looking through risks – and may continue to be. But the list of risks is growing as resolutions remain elusive," said Laura Cooper, global investment strategist at asset manager Nuveen.

"The dissonance cannot hold indefinitely ... At some point, the weight of what is being ignored could become the only one that matters." (Editing by Kim Coghill and Shri Navaratnam)