Asian equity markets opened with marked caution on Tuesday as fresh geopolitical ambiguity in the Middle East appeared to blunt investor enthusiasm stirred by AI-related developments. MSCI’s broad index of Asia-Pacific shares excluding Japan oscillated between small gains and losses at the start of trading and was last 0.5% lower, reflecting uneven market sentiment.
Regional moves were mixed but tilted negative in several pockets. Korean shares led losses with a roughly 2% decline after an earlier constructive open, while Japan’s Nikkei 225 slid around 0.7%. S&P 500 e-mini futures traded about 0.3% lower, underscoring a cautious tone extending to US equity futures.
Analysts at Westpac highlighted how conflicting reports out of the Middle East had produced a volatile reaction in markets. As Westpac wrote in a research note, "Conflicting news coming out of the Middle East left markets whipsawing, with Iran stating that negotiations with the U.S. have been suspended, only for President Trump to follow up in recent hours with reassurances that talks are continuing 'at a rapid pace'."
Energy markets reflected the geopolitical tension. Brent crude held roughly steady around $95 a barrel after Lebanon announced a partial ceasefire between Hezbollah and Israel on Monday, an outcome described in reporting as potentially clearing the path for renewed efforts to end the three-month war between the United States and Iran. Oil prices had settled up more than 4% on Monday following reports that Tehran had halted indirect negotiations with the U.S.
Macro data from the United States provided a counterweight to the risk-off impulses. The S&P 500 closed 0.3% higher overnight after the ISM manufacturing purchasing managers index rose to 54.0 in May from 52.7 in April, surpassing expectations and marking the highest reading in four years. The ISM gain was characterized in commentary as likely influenced by businesses bringing forward orders amid rising prices and supply shortages related to the war with Iran.
Market participants also pointed to the ongoing momentum in US equities. David Rosenberg, founder and president of Rosenberg Research in Toronto, noted in a client note that "That the equity market is in boom mode is not up for debate," and observed that the S&P 500 had recorded a nine-week winning streak, a run last seen in late 2023, even as energy prices and real interest rates rose.
AI sector developments supplied fresh, company-specific catalysts in Asia. Suppliers tied to artificial intelligence gained ground after AI developer Anthropic disclosed that it had confidentially filed for a US initial public offering that could draw a valuation in the trillions of dollars, according to the announcement. Meanwhile, Alphabet shares drifted lower, slipping about 0.7% after the company disclosed plans to raise roughly $80 billion through equity offerings, including an expected investment from Berkshire Hathaway, as part of an aggressive push to fund the expansion of its AI infrastructure.
Currency and fixed income markets showed relative calm. The US dollar index, which measures the greenback against a basket of six currencies, held near 99.18, inside a narrow range it has occupied for the past three weeks. The yield on the US 10-year Treasury fell about 2.0 basis points to 4.455%.
Precious metals and cryptocurrencies moved modestly. Gold was reported down 0.1% at $4,479.17. In digital assets, bitcoin traded down about 0.2% at $71,232.83, while ether was roughly flat at $2,002.03.
Market context
Investors navigated a crosscurrent of upside catalysts tied to AI technology adoption and fresh corporate capital plans, and downside pressures from intermittent geopolitical developments in the Middle East. The net effect was a fragile market opening that swung in both directions as newsflow evolved.