Global financial markets opened the new week with mixed developments. While the Artificial Intelligence (AI) boom continues to lift stock markets, oil prices recorded an unexpected decline amidst geopolitical tensions. Let's review the most prominent news impacting investor cash flows today.

AI Boom Boosts Asian and Global Equities

The massive data processing demand from AI is creating a strong tailwind for chipmakers, washing Asian stock markets in green.

• South Korea & Taiwan: South Korea's tech index rose 1.4%, while the Taiwanese market climbed 1% to hit a three-month high.

• Broader Markets: The MSCI Asia-Pacific index (excluding Japan) added 0.9%, and Chinese blue-chip stocks gained 0.2%.

• This positive momentum also spread to the West as US futures (Nasdaq up 0.6%, S&P 500 up 0.4%) and European futures (EUROSTOXX 50 up 0.5%) all advanced simultaneously.

Oil Prices Drop Despite Escalating Geopolitical Tensions

Despite renewed threats between the US and Iran or attacks by Houthi forces, energy markets recorded a cooling off:

• Brent crude fell 1.7% to $102.08 a barrel.

• US crude (WTI) fell 1.8% to $98.53 a barrel.

What is the cause? According to Kpler data, oil supply from the Gulf is more abundant than expected. Exports from a key OPEC member recovered to over 4 million barrels per day (bpd) in September (compared to a bottom of 2.4 million bpd in August). Additionally, Saudi Arabia is working to restore flows through the East-West oil pipeline.

However, Vivek Dhar from CBA warned that global oil reserves could be depleted within 5 to 10 weeks, which will put massive pressure on parties to reach a geopolitical agreement to keep shipping lanes open.

Interest Rate Pressures Overshadow the Bond Market

In contrast to the euphoria in the stock market, the bond market is facing heavy sell-off pressure:

• The 2-year US Treasury yield surged to 4.7604% – the highest level since mid-2024.

• Fed Policy: Investors are pricing in a 56% probability that the US Federal Reserve (Fed) will hike rates in October, and a rate increase before year-end is seen as almost certain. BofA analysts even forecast the Fed will hike rates two more times (in October and December) to curb consumer demand.

• In Europe, France's public debt risk premium hit its highest level since the eurozone debt crisis. German bonds also came under pressure following the electoral defeat of the conservative party led by Chancellor Friedrich Merz.

Currencies & Commodities: Japanese Yen Trades Cautiously, Gold Declines

• Foreign Exchange: The Japanese Yen held steady at 157.00 JPY/USD during the Silver Week holiday, as investors remained cautious that the Bank of Japan might intervene in the market amid low liquidity. The Euro remained unchanged at $1.1477.

• Gold: Pressured by surging bond yields, non-yielding assets like gold fell 0.5%, retreating to $4,355 per ounce.

What are your thoughts on the growth momentum of AI stocks and the current interest rate risks? Leave a comment below to share your investment perspective!

Source: Reuters.