Markets in Asia saw AI-linked equities outperform on Thursday amid a string of generally encouraging corporate reports, while a sudden climb in oil prices and hawkish signals from central banks left global bond markets under pressure.
Investors anticipated warnings about higher rates later in the day from the European Central Bank and the Bank of England after three Federal Reserve officials voted to abandon the Fed's easing bias in the most divided decision since 1992. Outgoing Chair Jerome Powell confirmed he would remain a Fed governor for now to defend the institution's independence as his nominated successor, Kevin Warsh - hand-picked by President Donald Trump, who wants lower interest rates - moved toward confirmation.
Markets reacted by pricing out rate cuts from the Fed for the rest of the year, and traders placed roughly even odds on a rate hike by next spring. The shift in expectations helped push U.S. Treasury yields to a one-month high and sent the dollar broadly higher, at times climbing above 160 yen.
Equity moves and earnings
Nasdaq futures rallied about 1% in Asia after Alphabet, the parent company of Google, reported earnings ahead of forecasts and saw its shares climb around 7% in extended trading. Microsoft and Amazon posted solid results as well, boosting hopes for further positive reports from Apple later in the day.
Meta Platforms was an exception: the company raised its annual capital spending forecast to invest billions more in artificial intelligence infrastructure, a move that weighed on its shares, which fell roughly 7%.
Across regional markets, MSCI's broadest index of Asia-Pacific shares outside Japan was flat on the day but was on track for a substantial gain of about 16% for the month. Japan's Nikkei fell 1% on Thursday while still up roughly 16% in April. South Korea's KOSPI reached another record high after Samsung Electronics reported operating profit had jumped eightfold to a record on robust AI demand, before profit-taking trimmed gains. Mainland China's blue-chip index inched up 0.2%, and Hong Kong's Hang Seng slipped about 0.3%.
Bond markets: yields climb
The spike in oil prices exacerbated an already hawkish tone, triggering a sell-off in global government bonds. Benchmark U.S. Treasury yields rose 1 basis point to 4.4237% after jumping 6 basis points overnight to 4.434%, a level last seen in late March. Japan's 10-year government bond yield rose 4 basis points to 2.500%, the highest level since June 1997. Australia's 10-year government bond yield climbed 6 basis points to 5.066%.
Commenting on the backdrop, Jose Torres, senior economist at Interactive Brokers, said macroeconomic risks were significant but noted stock market bulls were hoping that a strong outlook for artificial intelligence could offset cyclical weakness. He noted that if earnings, capital expenditures and outlooks remain buoyant, investors might stay sanguine even as higher borrowing costs and widening credit spreads raise concerns.
Oil, dollar and the yen
Brent crude futures jumped 6% overnight to $122.53 a barrel, reaching a four-year high on concerns that the Strait of Hormuz might not reopen soon. That rise in oil pushed inflation and policy-rate worries higher among investors.
The U.S. dollar strengthened alongside higher yields, trading near its highest level in more than two weeks and hovering at 160.26 yen after an overnight rise to 160.48 yen. The yen has fallen more than 2% since the war began on February 28, and market positioning shows the largest short yen stance in nearly two years as investors bet neither domestic rate hikes nor the risk of intervention will lift the currency.
Market implications
The combination of robust AI-related corporate results and rising commodity and rate pressures left markets in a mixed state: technology stocks that benefit directly from AI investment drew buyer interest, while bond markets and currencies reacted to higher inflation and policy-tightening risk. The immediate outlook depends on whether corporates can sustain upbeat earnings and capital spending plans in the face of tighter financial conditions.
For now, equities tied to artificial intelligence have helped offset some cyclical concerns, but higher oil prices and a more hawkish central bank stance have increased volatility in fixed income and currency markets.