Asian stock markets experienced a significant upswing on Wednesday, driven by strong corporate earnings and a renewed interest in technology stocks, which contributed to Wall Street reaching new record highs. Additionally, optimism surrounding potential advancements in the opening of the Strait of Hormuz led to declines in oil prices and bond yields.
In Japan, the Nikkei index surged by 3.5%, fueled by substantial investments in artificial intelligence capital expenditures. South Korea also saw notable fluctuations, with its market climbing by 4.3%. The MSCI index, which tracks a broad range of Asia-Pacific shares excluding Japan, increased by 2.3%, while Chinese blue-chip stocks rose by 1.5%.
Despite the overall tech sector rally, Advanced Micro Devices (AMD) saw a decline of 8.8% in after-hours trading. Although the company reported earnings that surpassed analysts’ expectations, they were not sufficient to meet the heightened anticipations of investors.
Meanwhile, SpaceX, a player in the AI and satellite sector, fell by 7.5%, reversing much of its earlier gains during the day, amidst concerns that its capital expenditures were significantly impacting cash flow. This apprehension is common among AI companies due to the considerable costs associated with computational power, particularly as borrowing expenses continue to rise.
Chris Weston, the head of research at broker Pepperstone, commented, “SpaceX is performing well operationally, but its ambitious investment strategy will likely necessitate additional capital in the medium to long term.” He added that the manner in which management finances this growth and its associated costs will be a crucial focus for investors in the upcoming quarters.
On Thursday, SpaceX investors will face a significant moment when around 912 million shares owned by employees and pre-IPO stakeholders become available for sale.
In futures markets, Nasdaq futures remained steady following the earnings announcements, while S&P 500 futures rose by 0.3% after achieving all-time highs on Tuesday. EUROSTOXX 50 futures also increased by 0.3%, and DAX futures were up by 0.5%, with FTSE futures gaining 0.2%.
A continued decline in oil prices bolstered market sentiment, as Qatar indicated that mediators were making strides towards resolving the U.S.-Iran conflict, although specific details were lacking. Brent crude oil fell by 0.6%, settling at $78.85 per barrel, significantly down from its July peak of $102, while U.S. crude dropped by 0.9% to $75.09.
Energy economist John Oh from CBA noted that ship tracking data suggested oil traffic through the Strait of Hormuz was more resilient than anticipated, possibly reaching 40% to 45% of pre-war levels last week. He remarked, “We project that oil traffic needs only to return to 50% to 60% of pre-war levels for oversupply conditions to materialize in global oil markets.”
Oh’s insights help clarify why Brent oil futures are quick to fluctuate into the $70 range, as markets adjust to oversupply concerns amid hopes of the Strait officially reopening.
The decline in oil prices alleviated some inflation worries and positively impacted bonds globally, with 10-year Treasury yields decreasing to 4.603%, down from last week’s peak of 4.747%. Market participants also significantly reduced the likelihood of a Federal Reserve rate hike in September to 57% from 67%.
In a recent speech, Jeff Schmid, President of the Kansas City Fed, advocated for tighter monetary policy to help achieve the central bank’s 2% inflation target.
Currency trading was largely stable, although the New Zealand dollar dipped by 0.3% following data that indicated unemployment reached a decade-high of 5.6% in the June quarter. The euro remained unchanged at $1.1537, just shy of its recent six-week high of $1.1559. The dollar slightly weakened against the yen at 157.63, with the possibility of intervention still on traders’ minds.
U.S. Treasury Secretary Scott Bessent expressed confidence that Bank of Japan Governor Kazuo Ueda would act in the best interest of the country’s economy, a sentiment that markets interpreted as a signal for potential interest rate increases. In the past week, Japan and the United States conducted a rare joint yen-buying intervention and have committed to further actions if necessary to stabilize the currency.
In commodity markets, falling yields supported non-interest-bearing gold, which rose by 1.6% to $4,140 per ounce.
