Asian Markets Gain Amid Technology Boom and Rising Oil Prices
By Ankur Banerjee
SINGAPORE, July 23 – Asian stocks experienced an uptick on Thursday, buoyed by significant spending plans announced by U.S. technology companies, which are expected to positively impact chip manufacturers in the region. However, escalating conflict in the Middle East led to a surge in oil prices, reaching a six-week high.
The spike in oil prices has reignited worries about inflation, causing short-term U.S. Treasury yields to rise to their highest levels in 17 weeks. Traders are speculating that the Federal Reserve may need to increase interest rates sooner than previously anticipated.
Brent crude futures climbed by 2%, hitting $96 per barrel in early trading. This surge followed new military actions by the U.S. against Iran and attacks by Yemen’s Houthis on oil tankers in the Red Sea, intensifying a conflict that is affecting global markets.
Thierry Wizman, a strategist at Macquarie Group, highlighted that the increase in oil prices has raised concerns about its impact on global economic growth. Nearly five months of conflict have led to depleted global oil reserves and heightened inflation, with analysts warning that a closure of crucial shipping routes could disrupt supplies for a significant portion of the world’s oil and gas.
Wizman stated, “The worries about global growth are well-placed.”
Tech Firms Drive Market Optimism
On a positive note, earnings reports from companies like Alphabet and Tesla indicated that there is no slowdown in their substantial investments in AI infrastructure. Alphabet has now increased its capital expenditure plans for the year, anticipating spending between $195 billion and $205 billion.
This increase in spending is expected to benefit Asian chipmakers, resulting in South Korea’s KOSPI index rising over 3%, led by companies like SK Hynix and Samsung Electronics. Japan’s Nikkei index also saw gains of 1%.
The MSCI index, which tracks shares in the Asia-Pacific region excluding Japan, gained about 1% in early trading and is on track for a 3% weekly rise, breaking a two-week losing streak.
Gary Tan, a portfolio manager at Allspring Global Investments, noted that stronger growth in cloud services is validating higher AI spending, suggesting that the demand for hyperscale computing continues to grow. He emphasized that AI is rapidly transitioning from being just infrastructure-focused to actively disrupting existing market platforms.
Much attention this earnings season will be on whether the large investments in AI yield significant profit growth and whether the high valuations of some companies are justified.
Nick Twidale, chief market strategist at ATFX Global in Sydney, remarked, “We will still see a bit of a wary trading session ahead as the good news from earnings competes with the escalating conflict in the Middle East.”
Japanese Yen at Historic Lows
In the currency market, the Japanese yen has drawn attention as it hovered around 163.1 per dollar, slipping from gains made in the previous session. Reports that Bank of Japan officials might accelerate rate hikes did not seem to boost the currency, which touched 163.23 earlier in the week, marking its lowest point since December 1986.
Investors are cautious, keeping a close eye on potential interventions from Tokyo, as Japan’s finance minister has issued warnings that have had little effect on the yen’s value.
Strategists at OCBC stated, “The risk of currency intervention could help slow JPY weakness, but it is unlikely to fundamentally change its role as a funding currency.”
Currently, the U.S. dollar is strong due to a flight to safety and rising expectations that the Federal Reserve will raise interest rates. Traders are anticipating further rate hikes this year, with many expecting a hike may be fully priced in for September.
