Japan’s Nikkei fell 1% and South Korea’s Kospi fell nearly 2%, dragging MSCI’s broader Asia-Pacific stock index down 0.4%. Futures pointed to a stronger open for Wall Street, with S&P 500 and Nasdaq futures up 0.4%, while European futures rose 0.2%.
Asian stocks treated cautiously on Monday, as continued uncertainty over the ceasefire in the Middle East and growing expectations of further US interest rate hikes kept investors on the sidelines, while the dollar hovered near the highest level in a year.Japan’s Nikkei fell 1% and South Korea’s Kospi fell nearly 2%, dragging MSCI’s broader Asia-Pacific stock index down 0.4%. Futures pointed to a stronger open for Wall Street, with S&P 500 and Nasdaq futures up 0.4%, while European futures rose 0.2%.“We seem to be lacking some direction,” Nick Twidale, chief market strategist at ATFX Global in Sydney, told Reuters.“We may take a huge hit later today as a result of more positive news from the Middle East…
“But for now I think it will be a very fluid day with no big moves for either side.”
Uncertainty over ceasefire keeps oil supportive
Investor sentiment remained fragile despite Iran and the United States agreeing to halt renewed hostilities after several days of tit-for-tat attacks that threatened a temporary peace agreement.The renewed diplomatic efforts follow the attacks that erupted after an Iranian projectile hit a cargo ship in the Strait of Hormuz last week, with both sides accusing each other of violating the ceasefire.
Brent crude futures rose 0.85% to $72.60 per barrel, while US West Texas Intermediate crude rose more than 1% to $70.01 per barrel.“Markets enter July with a ceasefire that no one has complete confidence in,” Mark Chandler, chief market strategist at Bannockburn Capital Markets, told Reuters.
AI stocks remain under pressure
Investors have also continued to reassess valuations of AI-related stocks after rising sharply over the past few years.While Micron Technology’s upbeat earnings outlook has provided some support, Apple’s recent price hike has highlighted the rising costs associated with the AI investment cycle.Investors are moving away from large-cap AI stocks toward smaller, more cyclical sectors, indicating an early expansion of market leadership, strategists at BofA Global Research said.The Bank for International Settlements also warned that supply bottlenecks and intense competition could lead to overinvestment similar to previous boom-and-bust cycles in technology.“For this reason, traders have gravitated towards defensive and cyclically oriented areas of the equity space in recent weeks,” Jose Torres, chief economist at Interactive Brokers, told Reuters.
Dollar remains firm on interest rate hike bets
Expectations of further US interest rate hikes continued to support the dollar even as lower crude oil prices led to some easing of inflation.Markets are now pricing in at least one rate hike by the Fed this year, reversing previous expectations of two rate cuts before the conflict in the Middle East escalated.Strategists at Bank of America expect three rate hikes, citing a resilient labor market, new Fed Chairman Kevin Warsh and persistent inflation.The dollar index reached 101.33, slightly below the highest level in a year reached last week.The Japanese yen was trading at 161.77 yen to the dollar, remaining close to its weakest level in four decades as investors awaited possible intervention by the Japanese authorities.Gold fell 0.4% to $4,072 per ounce, as the rise in the dollar affected bullion. The metal is headed for a 13% decline in the second quarter, which is the largest quarterly decline since 2013, Reuters reported.