Talons on show

The yen firmed a touch on the BOJ decision to around 159 per dollar but later unwound those gains, and the Nikkei stock benchmark fell back 1%.

Stateside, the S&P 500 and Nasdaq notched their latest in a series of record closing highs after rising modestly on Monday. That came even as oil prices leapt to a three-week high, a rise that continued into Tuesday as Brent crude crossed $111 per barrel.

That reflects the continued disruption to traffic through the Strait of Hormuz and the lack of a material breakthrough in the Iran stalemate. Most recently, Reuters reported that President Trump was unhappy with an Iranian proposal to end the war that would set aside nuclear discussions until after the situation in the Gulf is resolved.

But even though investors may be warily eyeing energy markets, most are focusing more on this week’s central bank decisions and the mega-cap U.S. earnings due Wednesday and Thursday.

Tech and chip stocks remain buoyant, with Qualcomm jumping 13% on Monday on reports of a link-up with OpenAI on new smartphone processors. Nvidia surged to new records, having added back more than a trillion dollars of market cap over the past month. And South Korea’s chip-heavy KOSPI hit yet another record on Tuesday - even as other Asia markets slipped back.

Elsewhere, the Chinese government on Monday ordered that Meta unwind its acquisition of Chinese-founded, Singapore-based AI startup Manus. That shows how strategically sensitive the sector is to Beijing.

In other AI news, a renegotiated deal between Microsoft and OpenAI will allow the ChatGPT creator to sell products to Microsoft’s competitors - a sweeping but expected change to what’s been one of the AI era’s most consequential alliances. Microsoft, for its part, will aim to reduce its reliance on OpenAI by developing its own AI models.

With that, onto today's column.

Dissonance between record-high stocks and a geopolitical shock puzzles many, and a common narrative is that investors are "seeing through" the Iran conflict. But there's another take: this is just the sort of world we're now stuck in, and blow-by-blow events matter less than mega-trends and long horizons.

In an event-packed week like this, arguments cut both ways.

Sky-high oil prices are real and do matter - but they could, and have, also dropped 15% to 20% in an hour in this frenetic war environment. Energy experts may fret about intrinsic, ‌long-lasting damage to the physical energy market - but stock and bond markets ruthlessly price forward and assume eventual "normalisation" regardless.

 

Graphics are produced by Reuters.

Graphics are produced by Reuters.

As markets await this week's sweep of results from the U.S. mega-caps, Microsoft and OpenAI's renegotiated pact clears the way for OpenAI to strike new deals with other large tech companies. Microsoft's early investment, totaling $13 billion since 2019, helped pave the way for OpenAI’s ascent as an AI pioneer and powered growth at its Azure cloud-computing business.