Persisting U.S.-Iran tensions are dampening market sentiment, leading to declines in global stocks and bonds. Continued disruptions in the Strait of Hormuz are pushing oil prices higher.
On April 23, U.S. stock indices trended lower, European markets opened collectively down, and most Asian indices closed with losses, although South Korea's KOSPI bucked the trend to close 0.9% higher. U.S. Treasury prices faced pressure, while the U.S. dollar was largely flat. Both Brent and WTI crude oil rose more than 1%, while spot gold fell 0.6% to around $4,710 per ounce.
With no substantial improvement in geopolitical risks, the previously buoyant sentiment that drove U.S. stocks higher is gradually fading. The U.S. President announced an extension of the ceasefire period on Tuesday, yet the prospects for a new round of U.S.-Iran negotiations remain uncertain. During the extended ceasefire, both sides have blockaded the Strait of Hormuz to gain leverage in talks. Tehran has indicated it has no immediate plans to engage in negotiations.
Despite the ceasefire extension and strong first-quarter corporate earnings, which pushed the S&P 500 and Nasdaq to record closes overnight, with a semiconductor index logging its sixteenth consecutive gain, profit-taking sentiment has emerged. This is driven by accumulated market gains and upcoming central bank meetings, leading to lower U.S. index futures.
A Bloomberg analyst noted, "With the MSCI World Index up more than 8% this month and a series of key central bank meetings next week, investors have strong motivation to take profits. Additionally, traders remain cautious about the sudden super-cycle demand in artificial intelligence. Typically, when a theme becomes widely recognized, it is a good time to realize gains."
Key market movements are as follows:
Dow Jones futures fell 0.5%, S&P 500 futures declined 0.4%, and Nasdaq 100 futures dropped 0.3%. The Euro Stoxx 50 opened 0.5% lower, Germany's DAX index fell 0.7%, the UK's FTSE 100 declined 0.6%, and France's CAC 40 edged down 0.1%. Japan's Nikkei 225 closed down 0.7% at 59,140.23. The TOPIX index fell 0.8% to 3,716.38. South Korea's KOSPI rose 0.9% to 6,475.81. The yield on the 10-year U.S. Treasury note rose 2 basis points to 4.32%. The Bloomberg Dollar Spot Index was little changed. West Texas Intermediate crude rose 1.4% to $94.26 per barrel. Spot gold declined 0.6% to $4,713.42 per ounce.
Rising oil prices are pressuring U.S. stock futures. Despite the lack of positive geopolitical developments and the downward pressure on U.S. index futures, corporate earnings are providing some market support. Tesla reported better-than-expected first-quarter profits, Texas Instruments provided an optimistic outlook for the current quarter, and Boeing's stock rose significantly on robust delivery figures.
Oil prices advanced, with Brent crude gaining nearly 1.5% to $103.40 per barrel and WTI rising over 1.5%. A currency strategist at Commonwealth Bank of Australia in Sydney commented, "The market has maintained an optimistic view on this conflict, hoping for a swift resolution and a return to normal energy flows through the Strait. However, I believe the market will soon realize that the path to a lasting agreement remains long, and energy prices could rise further before eventually retreating."
Chip stocks led gains, with South Korean and Japanese markets hitting fresh record highs. SK Hynix reported first-quarter operating profit surged more than five-fold year-on-year, far exceeding analyst expectations. Boosted by this, SK Hynix closed 0.2% higher after rising more than 3% intraday, while Samsung Electronics saw its shares climb over 4% at one point.
SK Hynix's strong performance bolstered confidence in the Asia-Pacific tech sector. South Korea's KOSPI closed up 0.9% at 6,475.81, after extending gains to 2.1% intraday to set a new record high. This movement aligns with the strength in U.S. chip stocks, which have risen for 16 consecutive sessions, marking their longest-ever winning streak, with the Philadelphia Semiconductor Index also reaching a record high.
Data from Bloomberg Intelligence indicates that semiconductor industry revenue is projected to grow approximately 57% by 2026, double the growth rate of the overall tech sector and significantly higher than the S&P 500's expected growth rate of 9.3%.
A fund manager at Allspring Global Investments stated that the recent strength in Asia-Pacific tech stocks amid ongoing supply chain disruptions suggests investors are becoming more tolerant of short-term geopolitical risks. However, the potential for sustained outperformance relative to U.S. stocks may depend on capital expenditure signals from major tech firms in their upcoming earnings reports.
Japan's Nikkei 225, which had earlier surpassed the 60,000 mark for the first time in history, closed the day down 0.7% at 59,140.23. The TOPIX index closed 0.8% lower at 3,716.38.
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