Asian stocks surged for their strongest week in two months as fading U.S. rate hike bets lifted markets, though Middle East tensions and yen volatility kept risks elevated. The KOSPI rose 1.8%, Brent crude steadied at $87.03, and the yen hovered near 160 against the dollar, with experts warning of fragile investor confidence.
Asian markets closed a strong weekly rally on Friday, with the MSCI Asia-Pacific index gaining 2.6% and South Korea’s KOSPI snapping a seven-week losing streak by rising 1.8%. The gains followed weaker-than-expected U.S. inflation data and fading bets on an imminent Federal Reserve rate hike, which had pressured global markets earlier this month. However, geopolitical risks and currency volatility cast a shadow over the optimism.
Market Drivers and Geopolitical Risks
The rally was fueled by a combination of benign inflation data and a broadening AI theme, which helped offset concerns over stalled Middle East peace talks. Brent crude futures, which had fallen to below $90 earlier in the week, stabilized at $87.03 after a U.S. threat to expand economic pressure on Iran. But this is still a headline-driven rally rather than a clean risk-on regime,
said Charu Chanana, chief investment strategist at Saxo, warning that unresolved Middle East tensions could reignite inflation fears and reverse the gains.
The Yen’s Struggle and Central Bank Dynamics
The Japanese yen remained under pressure, trading at 159.36 against the dollar—close to the 160 level that could trigger another round of intervention. Padhraic Garvey of ING called the yen’s weakness an uber-cautious Bank of Japan and a policy rate that remains too low,
adding that this tension can be eased through rate hikes, and the sooner, the better.
Traders now price a 35% chance of a Fed rate hike next month, down from 55% a week earlier, as the central bank weighs inflation data and geopolitical risks.
Tech Stocks and AI Financing Breakthroughs
Technology stocks led the charge, with South Korea’s KOSPI benefiting from a surge in semiconductor demand. Samsung Electronics reported a 45% year-over-year sales jump in July, while TSMC saw a 45% sales increase, fueling optimism about AI infrastructure. A partnership between a major financial institution and six others to launch compute-financing platforms aimed at raising over $500 billion in third-party capital for AI projects further boosted investor sentiment.
However, the tech rally faced headwinds from mixed results in other regions. Chinese markets were subdued, with the Shanghai Composite down 0.2%, while India’s Sensex fell 0.6%. In Australia, the ASX 200 rose 0.3% ahead of the RBA’s decision, with analysts like Tony Sycamore of IG noting that 9,000 has now become a key support level
for the index. Sycamore also warned that earnings season could bring more disappointments than positive surprises,
potentially testing the 9,000 level again.
What’s Next for Markets?
The coming weeks will test the resilience of the current rally.
For now, markets appear to be walking a tightrope, balancing optimism about AI’s potential with caution over unresolved global risks.
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