Asian stocks extend rally on AI demand while oil retreats amid Middle East supply surge

Asian stock markets were building momentum on Wednesday, chasing a sixth consecutive day of gains as investors bet on sustained consumer appetite for artificial intelligence applications. The rally was anchored in semiconductor and memory stocks, which had now climbed for six straight sessions, signaling confidence that the AI boom was translating into real demand rather than mere speculation.

But the broader market picture was complicated by crosscurrents in energy and geopolitics. Oil prices were retreating as reports emerged that Saudi Arabia had restarted its East-West Pipeline and was preparing to resume exports through the Red Sea port of Yanbu. Brent crude eased 0.1% to $99.18 a barrel, while U.S. crude fell 0.4% to $90.14. The supply increase came as tensions with Iran remained volatile—President Donald Trump claimed progress in talks held in New York but threatened to "annihilate" the country if negotiations failed. Iranian President Masoud Pezeshkian was scheduled to address the United Nations General Assembly later that day, and traders were watching closely for any indication he might meet with Trump.

Meanwhile, Chinese President Xi Jinping was arriving in Washington, where speculation swirled about a potential extension of the trade truce between the two countries and possible cooperation on artificial intelligence development. The convergence of these diplomatic moves suggested markets were pricing in a period of reduced trade friction, at least in the near term.

On Wall Street, futures were holding steady. S&P 500 and Nasdaq futures showed little movement, while European indices edged higher—EUROSTOXX 50 futures and DAX futures each gained 0.3%, and FTSE futures rose 0.2%. The decline in oil prices provided some relief to bond markets, with 10-year Treasury yields staying below the 5% threshold that traders had begun to view as a psychological ceiling. But shorter-dated bonds told a different story: two-year yields had climbed to their highest level since mid-2024, reaching 4.7879%, as investors braced for the possibility of additional rate increases from the Federal Reserve.

Federal Reserve officials were reinforcing that expectation. Richmond Fed President Tom Barkin and Boston Fed President Susan Collins both expressed support for the previous week's rate increase, citing persistent inflation concerns. Futures markets were now pricing in a 54% probability of another hike in October, with traders expecting 33 basis points of additional tightening by year's end. The prospect of higher rates was already reshaping currency markets: the dollar reached multi-week highs against the euro, sterling, and Canadian dollar. The euro was pinned near $1.1440, hovering close to a two-month low. Against the yen, the dollar held at 157.60, though traders remained cautious about pushing past 160.00, wary of triggering Japanese intervention.

Trump's policy announcements were adding another layer of uncertainty. His call to ban U.S. diesel exports raised concerns about European inflation, since the continent relied heavily on American diesel shipments. Europe was already facing a natural gas shortage that threatened to drive energy prices higher as winter approached, making any disruption to fuel supplies a serious concern for the region's economic outlook.

In other commodity markets, gold eased 0.3% to $4,341 an ounce, while copper continued its remarkable run, climbing 18% so far in the year and approaching record highs. The divergence between energy prices falling and industrial metals rising underscored the market's conflicting signals: anxiety about growth and inflation coexisting with confidence in demand from technology and infrastructure sectors.