Asian Stocks to Rise, Oil Gains on Iran Deadlock: Markets Wrap
(Bloomberg) — Asian stocks looked set to rise as traders stayed bullish on the AI trade even as the US and Iran failed to reach any peace deal. Oil climbed and Treasuries fell.
Equity-index futures for Australia, Japan and South Korea pointed to gains at the open after the S&P 500 and the Nasdaq 100 indexes posted modest advances to set up a record close. Futures for the Wall Street benchmarks edged up 0.1% in early Asian trading.
West Texas Intermediate crude held above $98 a barrel Tuesday after President Donald Trump said the ceasefire with Iran was on “massive life support” and rejected the Islamic Republic’s latest peace proposal. Brent closed Monday over $104 a barrel.
That weighed on the Treasury market, which has priced out the odds of interest rate cuts by the Federal Reserve this year. The 10-year Treasury yield climbed six basis points to 4.41%, with investors getting a read on US inflation Tuesday.
Solid US earnings have driven a fresh round of upgrades to Wall Street’s year-end targets for the S&P 500, as investors bet corporate profits can sustain the rally despite lingering Middle East tensions. Global equities have erased losses tied to the Iran conflict and have climbed to records, supported by expectations that heavy spending on artificial intelligence, particularly in Asia, will underpin earnings growth.
“Markets are pricing both AI-driven growth and the Middle East supply shock,” said Jean Boivin, head of BlackRock Investment Institute. He said the buildout of AI data centers is offsetting the oil supply shock’s “drag on growth.”
The fragile ceasefire in the Middle East appeared to waver, with Trump calling Iran’s response to his peace proposal a “piece of garbage” and that he “didn’t even finish reading it.”
Trump didn’t indicate whether the US would resume military attacks on Iran as he previously has threatened if the Islamic Republic’s leadership didn’t agree to his terms. Trump told Fox News earlier on Monday that he’s looking at reviving a plan to escort ships through the Strait of Hormuz.
“An agreement remains elusive and risks remain elevated,” said Mark Haefele at UBS Chief Investment Office. “Both sides remain under pressure to conclude a deal.”
What Bloomberg strategists say:
“Software stocks will serve as a gauge of whether the promise of monetizing artificial intelligence via increased productivity is becoming a reality. If stronger names in the sector can monetize usage, data, security and work flow automation, then it offers evidence of real-world applications of AI capacity — and gives enterprises further reason to pay for it.”
— Michael Ball, Macro Strategist, Markets Live. For the full analysis, click here.
Investor attention will also turn to Tuesday morning’s CPI report to gauge the war’s impact on inflation. Goldman Sachs Group Inc. and Bank of America Corp. were the latest in a growing cohort of Wall Street banks pushing back their forecasts for rate cuts, arguing that both inflation and jobs data make a case for the Fed to stay on hold until at least the end of the year.
Traders will also be paying attention to the pound and gilt markets with Keir Starmer facing growing pressure to step down as prime minister.
While the Iran conflict has dragged on, the strength of first-quarter earnings surprises has now led multiple Wall Street strategists to raise their full-year targets on the S&P 500.
CFRA upped their target on resilient consumer spending and AI-related investment, while Yardeni Research Inc. now has the highest estimate on Wall Street among strategists tracked by Bloomberg.
Still, some on Wall Street are also concerned that elevated oil prices and fears about potential shortages could derail the rally.
Michael Burry, the investor made famous in The Big Short, has warned that the Nasdaq 100 Index is headed toward a dramatic reversal after a “parabolic” surge that has driven technology valuations to unsustainable heights.
Morgan Stanley said Monday that the oil market is in a “race against time” and that prices could move sharply higher if the Strait of Hormuz remains closed into June.
“The biggest concern is we’ve had a buffer on energy prices and there are arguments about when that stops out. When do we hit the bottom of the tanker and when does this really become an issue,” Sarah Hunt, chief market strategist at Alpine Saxon Woods, said in an interview with Bloomberg Television.
Corporate Highlights:
Fertilizer producer Mosaic Co. is temporarily taking nearly two million tons of US phosphate production off the market, underscoring the severity of the Iran conflict’s disruptions to a key agricultural and mining input. Cerebras Systems Inc. increased the size of its initial public offering, now seeking to raise as much as $4.8 billion, as demand for the artificial-intelligence chipmaker and data center operator’s shares continues to build. The White House is inviting Tesla Inc.’s Elon Musk, Apple Inc.’s Tim Cook, Boeing Co.’s Kelly Ortberg and executives from other large companies to accompany President Donald Trump on his trip to China this week. Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 8:15 a.m. Tokyo time Hang Seng futures rose 0.4% S&P/ASX 200 futures rose 0.1% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1784 The Japanese yen was little changed at 157.20 per dollar The offshore yuan was little changed at 6.7910 per dollar The Australian dollar was little changed at $0.7251 Cryptocurrencies
Bitcoin fell 0.1% to $81,696.73 Ether was little changed at $2,338.8 Bonds
Australia’s 10-year yield advanced two basis points to 5.01% Commodities
West Texas Intermediate crude rose 0.1% to $98.19 a barrel Spot gold rose 0.3% to $4,752.25 an ounce This story was produced with the assistance of Bloomberg Automation.
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