US stocks opened higher on Wednesday, driven by cooler-than-expected inflation data and a resurgence in enthusiasm for artificial intelligence trades, which boosted the technology sector.
The three major US indices all moved higher at the opening. The Nasdaq Composite rose 0.6%, the S&P 500 gained 0.35%, and the Dow Jones Industrial Average advanced 0.2%. In individual stock movements, ASML Holding NV shares climbed approximately 3%, extending positive momentum from its strong earnings. Alibaba Group Holding Ltd shares surged about 4%, while Apple Inc shares gained around 1%. The gains for Apple and Alibaba followed news that Apple's generative AI services, including Apple Intelligence, completed domestic filing in China, and Alibaba's Tongyi Qianwen model will be integrated into Apple's systems, a partnership viewed favorably by the market.
However, performance among stocks was mixed. SK Hynix Inc shares fell roughly 7%, as investors took profits following a surge of over 27% in the previous session. Morgan Stanley shares declined about 2%, with the market reacting cautiously to its second-quarter earnings report, putting pressure on the financial sector.
Geopolitical Tensions Cast Shadow on Market Recovery
Escalating tensions in the Middle East cast a shadow over the market recovery. Former US President Trump issued further military threats against Iran, and the US reinstated a blockade on Iranian vessels in the Strait of Hormuz. The international benchmark Brent crude oil rose 1% to $85.22 per barrel, following a cumulative surge of 11% over the previous two trading sessions. The rise in energy prices has introduced uncertainty regarding the inflation outlook, preventing a full recovery in market risk sentiment.
Federal Reserve Governor Michelle Bowman reiterated a hawkish stance on inflation during congressional testimony, stating that while June inflation data was better than expected, there remains "a long way to go" to reach the target, and "there is still plenty of work to do."
Key Market Movements at the Open
At the US market open, major sector ETFs showed mixed performance. The Internet Index ETF rose over 1%, the Consumer Discretionary ETF gained nearly 1%, while the Biotechnology ETF fell almost 1%. The Nasdaq Golden Dragon China Index jumped more than 2%, with KE Holdings Inc shares up about 7%, Bilibili Inc shares gaining around 4%, and XPeng Inc shares rising approximately 4%.
In Europe, the Euro Stoxx 50 index opened 0.2% higher. Germany's DAX index fell 0.7%, the UK's FTSE 100 declined 0.5%, and France's CAC 40 dipped 0.1%. ASML Holding NV shares in Europe surged 7% after the company reported second-quarter results that exceeded expectations across the board and raised its full-year guidance.
Asian Markets Show Strength
South Korea's KOSPI index surged 6.2% on Wednesday to 7,284.41 points, reclaiming its position as the year's best-performing major global index. SK Hynix Inc shares gained about 9%, Samsung Electronics Co Ltd shares rose approximately 6%, and Hanmi Semiconductor Co Ltd shares soared around 30%.
The semiconductor sector was the standout performer. A benchmark index for Asian semiconductor stocks rose 3.5% for the day. The premium for SK Hynix Inc's American Depositary Receipts (ADRs), listed just three days prior, briefly exceeded 50% over its shares listed in Seoul.
"Volatility has subsided, and we are seeing some covering buying in the chip sector," said Kazuhiro Sasaki, head of research at Phillip Securities Japan. He added, "This is less about a full-fledged return of tech stocks and more about the continuation of sector rotation—banking stocks look attractive, especially after the strong earnings from US banks."
In Japan, the Nikkei 225 index closed 1.5% higher at 68,751.51 points, while the Topix index gained 1.2% to 4,088.12 points.
Cooling Inflation Dampens Rate Hike Expectations
Following Tuesday's release of US inflation data that came in below forecasts, market expectations for a Federal Reserve rate hike this month receded. The Bloomberg Dollar Spot Index fell for a second consecutive day. The yield on the interest-rate-sensitive two-year US Treasury note stabilized after a 9-basis-point drop on Tuesday, while Japanese and Australian sovereign bonds also recorded gains.
"Below-consensus CPI readings provided a great deal of relief," said Tiffany Wilding, an economist at PIMCO. She noted the report "won't completely eliminate the discussion of further hikes, but it should effectively take a July hike off the table."
High Oil Prices and Middle East Risks Pose Inflation Threat
Despite strong performances in the technology and financial sectors, tensions in the energy market are causing investor unease. Brent crude rose for a third consecutive day, with historically tight conditions in US and European refined product markets. A further deterioration in the Middle East situation could deliver an additional oil price shock to already pressured consumers.
"Gains in refined product futures have far outstripped those in crude, implying investors are too optimistic that energy supply shocks will fade quickly this year, especially with the recent escalation in US-Iran tensions," said Garfield Reynolds, chief Asia strategist for MLIV at Bloomberg. "Investors have been inclined to price Middle East and European war impacts as transitory, and that dynamic will continue to haunt equity, credit and bond markets."
Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management, stated, "The ongoing conflict in the Middle East remains the main constraint to a full improvement in risk sentiment."
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