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(Bloomberg) — Asian stocks looked set to rebound from their biggest drop since March as tensions in the Middle East eased and a selloff in artificial intelligence shares abated.
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Equity-index futures pointed to gains of more than 2% for the Nikkei and over 5% for the Kospi, following Monday’s sharp declines. Wall Street gauges also recovered, with chipmakers such as Nvidia Corp. and Micron Technology Inc. climbing. Contracts for US stocks were little changed.
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American crude steadied in early Tuesday trading around $91.25 a barrel. The commodity pared much of its advance in the previous session as Iran and Israel pledged to ease strikes that threatened the peace talks in the Middle East.
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Treasuries trimmed their losses, pulling two-year yields back from a more than 15-month high as easing tensions in the Middle East reduced support for oil prices.
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After a brief interruption to the rally that propelled stocks to record highs, investors returned to risk assets during the New York session, signaling confidence that the bull market remains intact. The recovery was aided by easing geopolitical concerns and renewed demand for AI shares after last week’s steep decline.
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“Markets rarely move in a straight line at the pace seen since the March lows,” according to Morgan Stanley’s Mike Wilson, who maintained his constructive outlook, supported by earnings and strong economic data. “A correction was inevitable and ultimately healthy if this bull market is going to extend into year-end.”
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Meanwhile, Iran and Israel agreed to ease strikes against each other after a flare-up in violence threatened to derail peace negotiations and led President Donald Trump to appeal for de-escalation.
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Attention remains focused on whether energy flows will resume meaningfully via the Strait of Hormuz. A trickle of commercial shipping returned to the waterway over the weekend, even as the risks prompted some vessels to travel with their digital transponders switched off.
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Oil prices and their impact on inflation are key factors traders are watching after Friday’s blowout payrolls report reinforced bets on a rate hike. The May consumer price index due Wednesday is expected to jump by 4.2% from a year earlier — the highest rate in more than three years.
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But the core CPI is seen cooling slightly on a monthly basis — potentially providing a welcome signal to Fed officials.
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Meantime, Citigroup Inc. strategists led by Scott Chronert raised their year-end target for the S&P 500 after a “big step up” in earnings expectations.
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“We do not expect investors to lose confidence in the AI outlook,” said Mark Haefele at UBS Global Wealth Management. “Although tech stocks have come under pressure in recent days amid concerns about whether expectations can be met, business fundamentals remain strong.”
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