Asia Stocks Rely on Artificial Intelligence Boom to Mitigate Middle East Geopolitical Uncertainty

Asian Share Markets Firm as AI Demand Continues to Drive Growth

Asian share markets experienced a positive start to the week, with a boom in artificial intelligence (AI) related goods and services driving demand and offsetting concerns over the lack of progress in Gulf peace talks. The Strait of Hormuz, a critical waterway for global oil supplies, remains closed, leading to a rise in oil prices.

The ongoing negotiations between Washington and Tehran have been met with silence from President Donald Trump, while Defense Secretary Pete Hegseth stated that the U.S. is prepared to resume attacks on Iran if a deal cannot be reached. Tensions in the region have also been exacerbated by an Israeli push further into Lebanon against the Iranian-backed Hezbollah militant group.

Despite these uncertainties, economists remain optimistic that the global economy will begin to recover if tankers can start moving again through the Strait of Hormuz. Michael Feroli, head of U.S. economics at JPMorgan, noted that while not everything will return to its pre-conflict state, oil prices are likely to remain elevated for some time as inventories are rebuilt and the supply infrastructure in the Middle East is repaired.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The lack of news on the Strait of Hormuz led to a 1.9% increase in Brent crude oil prices to $92.89 a barrel, while U.S. crude added 2.4% to $89.46.

The demand for semiconductors and AI-related gear continues to drive growth in Asian markets, with the Nvidia boss Jensen Huang set to kick off the Computex trade show in Taiwan on Monday.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Despite the gains, the market remains narrowly based, with the AI-linked big 10 companies making up 40% of the S&P 500 and only 21 stocks of the 500 making record highs. Tech stocks have climbed almost 16% in May, while consumer discretionary and healthcare have managed little more than 2%, and consumer staples have lost more than 3%.

The inflationary pulse from oil continues to hamper bond markets, with U.S. 10-year yields rising 3 basis points to 4.470%. Markets imply a 50-50 chance that the Federal Reserve will have to hike rates by year-end to prevent rising prices from getting baked into inflationary expectations.

Market forecasts are for a solid rise of 85,000 in employment, keeping the jobless rate steady at 4.3%. Anything stronger would likely see the odds of a hike narrow further.

The dollar has remained broadly steady, with the Japanese yen and the euro hampered by those regions' reliance on energy imports. The dollar was a shade firmer on the yen at 159.42, but bulls were wary of risking Japanese intervention on a break of the 160.00 barrier. The euro stood at $1.1645, having spent the past week hemmed in between $1.1585 and $1.1661.

In commodity markets, gold was little changed at $4,535 an ounce, having found little support as a safe haven or as a hedge against inflation.