Global markets mixed due to geopolitical concerns following AI rally

Global markets are trading on a mixed trend on Tuesday following a rally led by tech and artificial intelligence (AI), as risks related to a potential reignition of the Iran war overshadowed Monday’s gains.

Despite ongoing US-Iran negotiations, Tehran recently said it will suspend communications with Washington, protesting against Israel’s escalation of tensions in Lebanon.

US President Donald Trump reportedly talked to both Israel and the Lebanese group Hezbollah following Tehran’s move, and said the parties had agreed not to attack one another, while reiterating that negotiations with Iran are ongoing at a rapid pace despite announcements of suspension from the Iranian side.

Risk aversion persists in global markets, with no tangible progress toward peace on the horizon.

Global markets are seeing heightened volatility in the face of escalating conflicts in the Middle East despite record highs as recent as Monday, led by a rally in AI stocks.

Investors hope for a US-Iran deal, but energy prices remain the key driver of the short-term inflation outlook amid the current conditions in the Strait of Hormuz.

Brent crude oil declined 1.3% on Tuesday to $93.7 per barrel following a 3.8% surge on Monday, despite the ongoing fragile environment, as the hopes for tangible peace outweighed.

The US 10-Year Treasury yield is trading at 4.44% on Tuesday, down 2 basis points, while the US Dollar Index is at 99.2, marking a 0.1% decline.

The price of gold is down 0.7% to $4,517 per ounce on Tuesday, led by the decline in Treasury yields and the US Dollar Index.

The New York Stock Exchange saw a positive trend on Tuesday, led by a tech rally.

Chipmaker Nvidia unveiled its next-generation RTX Spark chip, developed in collaboration with Microsoft. The announcement supported the AI-driven optimism in the market.

Nvidia’s shares gained 6.3% following the announcement.

The US’ Institute for Supply Management manufacturing Purchasing Managers’ Index (PMI) rose to 54 in May, its highest since May 2022.

The rise is reportedly stemming from businesses bringing forward their orders in response to supply chain issues and rising prices due to the Middle East conflict.

Google’s parent company Alphabet is planning to issue a total of $80 billion in shares to fund its AI infrastructure investments.

In light of these developments, the Dow Jones climbed 0.09% to an all-time high of 51,161.1 points, the S&P 500 increased 0.26% to a record of 7,617.66 points, and the Nasdaq surged 0.42% to a record high of 27,190.21 points on Monday. American indexes started Tuesday negatively.

Meanwhile, European stock markets traded negatively on Monday amid uncertainties over a US-Iran deal and the reopening of the Strait of Hormuz.

Germany’s manufacturing PMI in May came at 50.1, while the eurozone’s figure reached 51.6, both above estimates.

The eurozone’s seasonally adjusted unemployment rate remained steady at 6.3% in April.

The UK’s manufacturing PMI reached its four-year high at 53.9.

At the same time, the European Central Bank is expected to adopt a hawkish stance in July if not in June.

As for stocks, shares of tank transmission maker Renk fell 8% amid a wave of sell-offs across the defense sector, while German defense firm Rheinmetall closed the day with a loss of over 6%.

The DAX 40 fell 0.4%, the FTSE MIB 30 0.52%, the FTSE 100 0.68%, and the CAC 40 0.45% on Monday, while European indexes opened Tuesday on a mixed trend.

Meanwhile, Asian stock markets were mixed.

South Korea’s annual inflation for May rose from 2.6% to 3.1%, above estimates, strengthening expectations that the Bank of Korea may hike rates in the coming months.

The US dollar/Japanese yen exchange rate is trading on a horizontal line at 159.7, as market expectations that Japanese authorities could intervene in the foreign exchange market if necessary remain.

Following these developments, the Kospi Index fell 1.4% and the Nikkei 225 1%, while the Hang Seng Index rose 1.5% and the Shanghai Composite Index is trading flat.

 

* Writing by Emir Yildirim