Global financial markets are navigating a turbulent stretch, caught between an uneasy pause in Middle East fighting, growing skepticism about sky-high technology stock valuations, and the prospect that interest rates could stay elevated for longer than expected.
Oil prices, which had surrendered nearly all of the gains recorded since U.S.-Iran hostilities broke out in late February, ticked back up as fighting resumed — but then pulled back again after signs emerged that new negotiations could produce a temporary agreement.
That partial relief helped push U.S. and European stock futures higher. However, Asian markets continued to struggle as investors worried about inflated tech valuations and the headwinds created by a stronger American dollar.
Questions are mounting about whether the artificial intelligence boom that has been driving global stocks to record levels is beginning to lose momentum. Investors are increasingly asking whether the enormous sums being poured into AI infrastructure will ultimately generate adequate returns.
The picture is mixed on that front. Micron’s upbeat earnings forecast last week suggested demand for memory chips remains strong, but Apple’s decision to raise prices highlighted the difficulties companies face when they try to pass along higher chip costs to their customers.
The U.S. dollar held near a one-year high, weighing on most other currencies — but the Japanese yen has been hit hardest. The yen sat at 161.78 per dollar, hovering just above 40-year lows of 161.96. The only factor preventing a further slide is the possibility that Japanese authorities could intervene in currency markets again.
Officials in Japan did step in to support the yen in late April through early May, but as with similar moves in 2022 and 2024, the intervention did not fundamentally alter the yen’s downward path.
With markets now pricing in a Federal Reserve rate hike this year, analysts say only a dramatic policy shift from the Bank of Japan could meaningfully reverse the yen’s fortunes.
On the economic calendar Monday, euro zone sentiment surveys for June are among the key data points investors will be watching.
