Asian markets traded mixed on Wednesday as fading momentum in artificial intelligence-linked stocks, elevated oil prices and concerns over persistent inflation kept investors cautious. According to Reuters, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6% for a second straight session, reacting to stalled US-Iran talks and hotter-than-expected US inflation data. Japan's Nikkei 225 edged up less than 0.1% to 62,774.94, while South Korea's Kospi gained 0.9% to 7,708.05 after recovering from earlier losses. Australia's S&P/ASX 200 slipped 0.3% to 8,645.80, and Hong Kong's Hang Seng Index fell 0.4% to 26,246.29, with China's Shanghai Composite little changed at 4,213.86.
Global equity markets are defying geopolitical risks and high oil prices, with investors betting on economic resilience fueled by AI-driven earnings growth. According to market strategist Ed Yardeni from Yardeni Research, the ongoing rally has remained remarkably strong despite concerns surrounding the Middle East conflict, volatility in energy markets, and frequent policy commentary from US President Donald Trump. Oil prices are elevated, but the market believes the global economy can live with crude around $100 a barrel, as the global economy today is significantly less dependent on energy than decades ago. However, as noted by Tim Waterer, chief market analyst at KCM Trade, "Corporate earnings and AI momentum are acting as the market's primary shock absorbers, but the road is getting significantly rougher".
South Korean markets remained particularly volatile after a recent AI-driven rally pushed stocks to record highs. Korean shares had earlier dropped as much as 3.2% before recovering, highlighting the market's sensitivity to AI momentum shifts. Shares of Samsung Electronics plunged 5.7% after the company failed to reach a wage agreement with its labour union, raising the possibility of a strike involving more than 50,000 workers that could affect chip production. This development underscores the vulnerability of AI-linked stocks to operational disruptions, even as the broader AI boom continues to support market sentiment.
On Wall Street, major US indices ended lower overnight, with technology stocks leading declines as the AI rally faced headwinds. The S&P 500 slipped 0.2% from its record high, while the Nasdaq Composite fell 0.7%, with Intel dropping 6.8% after a strong rally earlier this year and Micron Technology losing 3.6%. As per AP, "Corporate earnings and AI momentum are acting as the market's primary shock absorbers, but the road is getting significantly rougher," with "With oil prices becoming entrenched at elevated levels and a diplomatic breakthrough between the US and Iran remaining elusive, the easy bullish narrative is becoming much harder to maintain."
Oil prices eased slightly on Wednesday but remained near multi-month highs due to ongoing tensions in the Middle East and continued disruptions around the Strait of Hormuz. Benchmark US crude fell 58 cents to $101.60 a barrel, while Brent crude slipped 66 cents to $107.11. Oil has largely remained above $100 per barrel since US and Israeli strikes on Iran earlier this year and Tehran's effective closure of the Strait of Hormuz disrupted global supply flows. The fragile ceasefire between the US and Iran has also failed to reassure investors, with US President Donald Trump saying on Tuesday that he does not believe China's help is necessary to end the conflict ahead of his meeting with Chinese President Xi Jinping later this week.
Investors also reacted to stronger-than-expected US inflation data, which reinforced expectations that the Federal Reserve may keep interest rates elevated for longer. A hotter-than-expected inflation report and persistent geopolitical tensions reminded investors that sticky prices and elevated energy costs are not going away anytime soon, according to IG analyst Tony Sycamore. Markets have largely ruled out any Federal Reserve rate cuts this year, while expectations for a rate hike by December have risen sharply, according to CME FedWatch data. US Treasury yields remained elevated, with the benchmark 10-year Treasury yield holding near 4.47%, its highest level since July.
