Market Overview
Global markets are experiencing a resurgence of optimism, primarily driven by a robust AI-powered rally on Wall Street that saw major US indices gain significantly. This positive sentiment, coupled with declining oil prices amidst hopes for US-Iran diplomacy and easing US Treasury yields, has broadly lifted Australian and Asian equities. European markets are poised for a positive open, extending these gains. However, this bullish mood is tempered by cautionary signals from the Reserve Bank of Australia regarding persistent inflation, leading to expectations of further rate hikes. Geopolitical developments, particularly the upcoming US-China summit, remain in focus, while European bond yields edged higher on concerns over potential US-Iran tensions.
Markets
Asian and Australian equities largely closed higher following an AI-driven rally on Wall Street in the previous session. Australia’s S&P/ASX 200 ended its session up 0.30% at 8,757.80, pulling away from a recent three-month low. South Korea’s KOSPI advanced 0.26% to close at 7,025.71, and Hong Kong’s Hang Seng gained 0.13%, trading at 25,074.09, with the Hang Seng TECH advancing 1.4%. Mainland China’s Shanghai Composite edged up 0.06% to 3,952.29, and the CSI 300 was 0.51% higher. Japan’s markets were closed for a public holiday. Elsewhere in Asia, Singapore’s Straits Times Index rose 0.4%, while futures tied to India’s Nifty 50 edged down 0.2%.
Oil prices continued their descent, with Brent Crude trading down 2.60% at 97.73 and WTI Crude down 2.20% at 93.67. US 10-year Treasury yields eased, standing at 4.963%, a drop of 3.50 basis points. Gold traded down 0.65% at 4,355.30, although some reports noted it had edged higher earlier in the session, suggesting mixed movements. European stock futures, including Euro Stoxx 50 and Stoxx 600 futures, were both up about 0.1% in pre-market trading, pointing to a positive open.
In the previous US session, the S&P 500 climbed 1.49% to 7,764.70, coming within 0.4% of its record. The Nasdaq Composite jumped 2.26% to 27,122.09 for its first closing record since June, while the Dow Jones Industrial Average rose 0.71% to 52,048.83.
What Drove Markets
The primary driver of global optimism was renewed excitement surrounding artificial intelligence, which fueled a significant rally in US tech stocks. SPI Asset Management’s Stephen Innes observed that the market had finally received the combination it awaited, with oil moving away from the danger zone, the US 10-year yield slipping below 5%, and the AI complex driving gains. This “AI-powered rally” saw Meta Platforms surge 11.34% to 741.25 following early signs of success for its AI agent, igniting interest in the chip-making industry. Other notable gainers included Intel, up 12.14% to 121.78, Advanced Micro Devices (AMD), which gained 9.95% to 615.52 and briefly touched a $1 trillion market cap, and Nvidia, up 2.30% to 227.38. In Hong Kong, Alibaba‘s shares jumped after the company unveiled its new Zhenwu V900 artificial intelligence chip, which it said delivers three times the performance of its predecessor, and plans for a sharp expansion of its data center footprint to more than 20 gigawatts by 2032. Chinese technology shares, including Baidu and Tencent, were also higher.
Declining oil prices further contributed to improved market sentiment. Brent crude briefly dipped below $US100 a barrel amidst hopes for diplomatic efforts to de-escalate tensions in Iran and higher Saudi exports. Conversely, some European government bond yields traded broadly higher on Tuesday, reversing some Monday declines which saw France’s 10-year benchmark bond yield fall by 9.77 basis points, the German 10-year yield drop 6.81 basis points, and the payout on U.K. 10-year gilts drop 8.23 basis points, according to LSEG data, as investors assessed the potential for another flare-up in tensions between the U.S. and Iran. The OAT-Bund spread, a measurement of France’s borrowing costs over Germany, had breached the psychological threshold of 100 basis points on Friday.
Despite the broader market optimism, the Reserve Bank of Australia (RBA) issued cautionary signals regarding persistent inflation. RBA Governor Michele Bullock reiterated concerns that upside risks to inflation could be materializing due to persistently high energy prices. RBA Assistant Governor Sarah Hunter cautioned that interest rates might need to increase for a fourth time this year to combat rising price growth. Financial markets imply a 95% chance the RBA will lift the cash rate to 4.6% when it meets next week, with two increases to 4.85% fully priced by early next year.
Stocks to Watch
The AI rally translated into mixed performance across Asian chipmakers. Samsung Electronics rose 1.28% to 277,500.00, contributing to the KOSPI’s gains. However, SK Hynix traded down 1.45% to 1,841,000.00 and TSMC declined 0.81% to 2,460.00, despite some reports of gains earlier in their respective sessions, indicating mixed performance among chipmakers. MediaTek also surged more than 8% in Taiwan’s Weighted Index, which rose 1.5%.
In Australia, lower oil prices weighed on the energy sector, with Woodside falling 2.37% to 31.67. The “big four” banks saw mixed results: ANZ ended in the green, up 0.32% to 38.15, while Westpac was down 0.06% to 34.91, NAB down 0.28% to 38.61, and CBA down 0.43% to 152.33. Separately, ASX-listed Global Lithium surged 50% on Middle East takeover news, and Stake reported account information stolen in a breach.