Asian Tech Rallies as AI Chip Demand Offsets Bond Stress
South Korea's KOSPI rose 1.1% on Monday driven by semiconductor gains, while US bond yields hit multi-year highs, pressuring global risk assets.
Key points
- South Korea's KOSPI index rose 1.1% on Monday as AI-driven demand for chips supported tech stocks in Asia.
- US 2-year Treasury yields hit 4.7604%, with markets pricing in a 56% chance of an October Fed rate hike.
- Global oil inventories are estimated to deplete in 5 to 10 weeks due to pipeline disruptions in the Middle East.
Asian equity markets closed modestly higher on Monday, with South Korea’s tech-centric KOSPI index gaining 1.1% as artificial intelligence infrastructure spending continued to support semiconductor manufacturers. The advance came despite thin trading volumes in the region, as Japan remained closed for its Silver Week holiday through Wednesday, limiting the breadth of the rally to markets where liquidity remained active.
The broader MSCI Asia-Pacific ex-Japan index edged up 0.3%, reflecting cautious optimism among investors who are weighing robust corporate earnings in the tech sector against rising macroeconomic risks. While the Nikkei 225 was suspended, Japanese futures indicated a 0.5% gain, suggesting that domestic sentiment remains supportive despite the holiday pause in official trading.
Bond yields spike amid Fed tightening
Fixed-income markets experienced significant volatility as US 2-year Treasury yields climbed 36 basis points over two weeks to reach 4.7604%, the highest level since mid-2024. This sharp rise in borrowing costs was driven by hawkish guidance from the Federal Reserve, which has convinced market participants that further rate hikes are likely to continue through the end of the year.
According to Business Standard, futures markets are currently pricing in a 56% probability of an additional rate increase in October, with a December hike widely considered inevitable by traders. This tightening cycle is being reinforced by strong consumer spending data, which rose 6.3% year-on-year, a pace that historically correlates with above-target core inflation and necessitates continued monetary restraint from policymakers.
Oil inventories face rapid depletion
Commodity markets faced pressure from geopolitical tensions, with Brent crude holding steady at $103.68 per barrel after a slight dip of 0.2%. The stability in prices came as reports emerged that Saudi Arabia is attempting to restart flows through its main east-to-west pipeline, which was damaged in recent attacks, although specific details on the timeline for restoration remain scarce.
However, analysts warn that the closure of this critical infrastructure has drastically altered the global oil supply landscape. Estimates now suggest that global oil and refined product inventories could be depleted within 5 to 10 weeks, a significant reduction from the previous 15 to 20-week buffer, thereby increasing the urgency for diplomatic solutions to ensure the safe passage of energy supplies through the Strait of Hormuz.
Currency markets remain cautious
Currency trading was subdued as the US dollar held steady at 157.00 yen, with investors wary of potential Bank of Japan intervention. The yen had previously surged on reports of rate checks by Japanese authorities, prompting caution in a market where liquidity is currently low due to the holiday break. This dynamic has kept cross-border currency flows conservative.
In Europe, the euro remained flat at $1.1477, having lost nearly 1% of its value in the previous week as the dollar strengthened broadly. Political uncertainty in Germany, following poor election results for Chancellor Friedrich Merz’s party, added to the cautious tone in European markets, with investors monitoring potential impacts on fiscal stability and debt sustainability in the region.
