Chip stocks staged a strong rebound, propelling Asia-Pacific markets higher on Tuesday after four consecutive days of decline. However, the upcoming earnings season for tech giants remains the biggest question mark over whether it can sustain the AI-driven rally.
Asia-Pacific equities advanced across the board on Tuesday, with the MSCI Asia Pacific Index rising 1.7%, ending its four-session losing streak. The chip sector was the core driver of this rebound—Samsung Electronics Co Ltd gained 3%, and Taiwan Semiconductor Manufacturing Company Ltd also strengthened, lifting South Korea's KOSPI and Taiwan's benchmark index both more than 2.5%. Japanese markets, closed on Monday, saw the Nikkei 225 index rise 2.2% on Tuesday. Concurrently, U.S. stock futures also recovered from early lows, with Nasdaq 100 futures briefly up 0.5%.
A retreat in oil prices further improved market sentiment. Brent crude fell 0.9% to around $88.46 a barrel, after inflation concerns sparked by high oil prices had pressured bond markets on Monday.
Earnings Season Kicks Off, Testing the AI Narrative
Behind the market rebound, investors' focus is locked on the U.S. tech earnings season starting this week. Tesla Inc and Alphabet Inc will report results on Wednesday, kicking off the earnings disclosures for major tech companies; Microsoft Corp, Meta Platforms Inc, Apple Inc, and Amazon.com Inc will follow with their reports in the subsequent week.
The central question for the market is whether these companies can justify their massive investments in artificial intelligence with solid financial performance.
Ikuo Mitsui, a fund manager at Aizawa Securities, stated, "The market has undergone a fairly significant adjustment, but at the same time, corporate earnings have been relatively robust, showing more resilience than expected."
A team of strategists led by Jean Boivin at the BlackRock Investment Institute wrote in a recent report, "The AI investment boom—as a key growth driver—and our preference for AI infrastructure remain intact amid recent volatility." They also noted, "The global economy is far less reliant on oil today than during past energy shocks, making it more resilient to rising oil prices."
Oil Prices Retreat, But Risks Persist
Although oil prices fell on Tuesday, the situation in the Middle East remains a potential source of market disruption. Threats by the Houthis to block Red Sea export routes have kept markets focused on whether Saudi Arabian exports might be impacted.
Last week's surge in oil prices saw WTI crude close at its highest level since mid-June. Inflation concerns stemming from rising energy costs had pressured bond markets, with the yield on the 10-year U.S. Treasury note currently around 4.59%.
BlackRock strategists believe there is currently no evidence that an escalation in the Middle East would be large enough to impact economic growth and change the market's risk-on stance.
Trump's 50% Tariff on Canada Heats Up Trade Friction
According to reports, the White House issued an announcement stating it will impose an additional 50% ad valorem tariff on certain Canadian products, citing "discriminatory measures" by Canada against the U.S. in trade of automobiles and auto parts. The new tariffs are set to take effect and will be levied on top of existing tariffs, taxes, and other charges.
If ultimately implemented, this move would represent one of the most severe trade actions against the United States' second-largest trading partner. The Canadian dollar reacted relatively calmly, with its exchange rate holding largely steady.
Gold Edges Higher, Dollar Index Little Changed
Gold rose 0.4% to approximately $2,424 per ounce.
The U.S. Dollar Index was little changed. The euro traded at $1.1414, the yen at 162.49 per dollar, and offshore yuan at 6.7649 per dollar.
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