Global equity markets have recovered from an early dip, with renewed buying in artificial intelligence-related stocks boosting risk sentiment. Concurrently, geopolitical tensions in the Middle East have escalated again following Iran's announcement that it is suspending talks with the US, adding to market volatility.
The MSCI World Index edged up 0.1%, staying near its record high after an intraday drop of 0.2%. Asian stocks rebounded from a loss of as much as 1% to close 0.3% higher. South Korea's Kospi index, often seen as a bellwether for AI investment, ended the day up 0.1%, erasing its earlier decline. Nasdaq 100 futures trimmed their loss to 0.3%, while Marvell Technology surged over 14% in after-hours trading. European equity futures extended their gains to 0.6%, indicating a clear revival in tech sector demand and improved risk appetite.
In the commodities market, Brent crude oil hovered near $94 per barrel, while gold prices rose about 1% to $4,523 per ounce. Aluminum prices advanced for a fourth consecutive day, with London Metal Exchange aluminum hitting an intraday high of $3,775 per ton, its highest level since 2022. Copper prices also rose 0.5% to $13,899.50 per ton. Iran's stated reason for suspending talks—citing Israel's military actions in Lebanon—has intensified market fears of potential supply disruptions through the Strait of Hormuz.
Hebe Chen, an analyst at Vantage Global Prime, commented, "The AI trade is not over, but after such a stretched rally, it has become extremely sensitive to any headline that could reignite the oil-inflation-rate chain reaction—a dynamic the market spent three months escaping."
Japan's Nikkei 225 index closed down 0.3% at 66,734.24, while the Topix index fell 0.4% to 3,924.24.
Nasdaq 100 futures pared losses to 0.3%, with Marvell Technology jumping more than 14% after hours. European equity futures advanced 0.6%.
Japan's 10-year government bond yield fell following a well-received debt auction, and US Treasury prices also gained slightly.
The yen held steady near 159.70 against the US dollar.
Gold prices increased by approximately 1% to $4,523 per ounce.
Brent crude oil traded around $94 per barrel.
Aluminum extended its rally for a fourth day, with LME aluminum reaching a high of $3,775 per ton, a peak not seen since 2022.
Copper prices rose 0.5% to $13,899.50 per ton.
Bitcoin fell 1.4% to $70,386.76.
AI Sector's Market Influence
The persistent, robust demand for AI-related stocks has been the primary engine driving global equity markets to record highs this year, helping to counter volatility stemming from Middle East tensions. The S&P 500 notched its eighth consecutive daily gain on Monday, its longest winning streak since May 2025. The Philadelphia Semiconductor Index (SOX) has surged roughly 70% over the past two months and is on track for its best quarterly performance on record. The chip sector is by far the top-performing group within the S&P 500 this year.
However, some investors are growing cautious about stretched valuations. Vikas Pershad, a portfolio manager at M&G Investments, stated in a Bloomberg Television interview, "The magnitude of the move we've seen has exceeded our expectations. The direction is not a surprise, but at these levels, we have trimmed our exposure to memory chips."
Bloomberg strategist Garfield Reynolds also highlighted risks, noting that momentum has dominated equity markets over the past year. This means any sharp decline in major indices could trigger a sustained downturn. Should substantive negative macro factors emerge, the AI-driven rally could come under pressure to cool.
Middle East Tensions and Aluminum Market
Aluminum prices have climbed about 25% year-to-date, with Middle East conflicts being a key driver. The region is a major hub for aluminum smelting, and hostilities have forced the closure or reduction of operations at several smelters. Iran's latest announcement to suspend talks has further unsettled the market regarding regional supply prospects. Investors are also optimistic about the demand outlook for industrial metals, continuing to pour into copper and aluminum markets.
The tightness in the physical market is evident in the futures structure. On Monday, the premium of the LME aluminum cash contract over the three-month contract reached $111.75 per ton, its highest level since 2007. This indicates a rapidly widening near-term supply deficit and extremely urgent demand for immediate delivery.
Mixed Peace Signals and Oil Prices
Brent crude oil retreated slightly on Tuesday near $94 per barrel after rising on Monday following conflicting accounts from former President Trump and Israeli Prime Minister Netanyahu about a call regarding the Lebanon conflict. Their contradictory statements are the latest example of inconsistent signals regarding ceasefire negotiations. Trump has repeatedly stated that talks are progressing and nearing an agreement, while Iran last week dismissed reports of an imminent interim deal and on Monday said it would coordinate actions with its proxies.
Jason Pride and Michael Reynolds of Glenmede noted, "Expectations for a US-Iran deal remain fluid. Recent clashes and contradictory statements from both sides suggest key details remain unresolved."
In separate news, the White House announced it would lower tariffs on agricultural machinery like combine harvesters to reduce costs for American farmers and manufacturers.
Currency Markets and Upcoming US Data
In currency markets, the yen held near 159.70 against the dollar. Japan's Finance Minister Satsuki Katayama stated authorities are prepared to intervene in the forex market if necessary, following the release of monthly intervention data last Friday. Japan's 10-year government bond yield declined after a strong bond auction, attracting investors with its high yield despite lingering Middle East uncertainty. US Treasury prices also firmed slightly. Among major Asian markets, Japan's Nikkei 225 closed down 0.3% at 66,734.24, and the Topix index fell 0.4% to 3,924.24.
A packed schedule of US economic data this week is another major focus for markets, culminating in Friday's May non-farm payrolls report. Investors hope to glean insights into the health of the US economy and the policy path of new Federal Reserve Chair Kevin Warsh. Chris Turner, Head of FX Strategy at ING, wrote on Monday that the market is gradually forming a view that US growth is re-accelerating as AI investment permeates the broader economy. He expects this week's data to further support the market narrative that "the Fed can comfortably maintain its full employment objective while focusing policy on inflation upside risks."
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