Asian stocks struggled for direction on Thursday after a volatile week driven by concerns over artificial intelligence, escalating tensions in the Middle East and uncertainty surrounding the Federal Reserve’s policy outlook.

The Fed kept interest rates unchanged, but divisions within the committee and the absence of clear forward guidance left bond markets uncertain about the central bank’s next move.

Asian Markets Lack Direction

MSCI’s broadest index of Asia-Pacific shares outside Japan fell around 0.6% after swinging between gains and losses during the session.

Japan’s Nikkei 225 edged up 0.24%, but remained on track for a weekly decline of about 4%.

In South Korea, the KOSPI dropped around 1% and was heading toward a 15% weekly loss. A sharp sell-off in semiconductor stocks erased more than $2 trillion in market value, reflecting growing investor concerns about whether massive investments in AI will generate sufficient returns.

Technology Stocks Show Diverging Fortunes

Samsung Electronics said chip shortages could worsen and continue into 2028, although a more than 250-fold increase in semiconductor profit helped ease some investor concerns.

Meanwhile, earnings from major U.S. technology companies highlighted a growing divide across the sector. Microsoft reassured investors that it could continue generating cash despite heavy AI spending, while Meta shares came under pressure after second-quarter free cash flow plunged 91%.

Markets are now awaiting results from Amazon and Apple for further indications of whether the AI investment trend remains sustainable.

Fed Holds Rates but Offers Little Clarity

Fed Chair Kevin Warsh pledged to contain inflation but gave no clear indication of what specific steps the central bank might take next.

The yield on the 30-year U.S. Treasury rose to 5.2039%, after reaching 5.2273%, its highest level since June 2007.

Fed funds futures now imply around a 60% probability of a rate increase at the September meeting, with approximately 33 basis points of tightening priced in by the end of the year.

Oil and the Dollar Remain Volatile

Brent crude fell below $90 per barrel after surging more than 7% in the previous session as fighting in the Middle East intensified.

The U.S. dollar also traded unevenly following the Fed’s decision, while rising long-term Treasury yields suggested that markets remain uncertain about the central bank’s ability and willingness to control inflation.

Conclusion

Global financial markets are facing several sources of uncertainty at the same time: unclear U.S. monetary policy, rising bond yields, escalating tensions in the Middle East and concerns about returns from AI investment.

Asian stocks are therefore likely to remain volatile in the near term as investors await clearer signals from the Fed, major technology earnings and geopolitical developments.

Source: Reuters