Asian Stocks Retreat from Record Levels Amid Modest Progress in Iran War Negotiations

SadaNews - Asian stocks retreated from record levels as efforts to secure a peace agreement between the United States and Iran showed little progress, and investors paused after a sharp rise driven by artificial intelligence.

The regional MSCI stock index declined by 0.4%, with South Korean stocks, considered a key indicator for AI investments, falling by 1.8%. Tech stocks remained under pressure, with Nasdaq 100 futures decreasing by 0.6%. However, Chinese stocks defied the general trend, with an index measuring the performance of major companies rising, led by a 7.4% increase in Tencent Holdings shares.

Brent crude traded at around $95 per barrel, amid conflicting signals from the Middle East casting shadows over the prospects for a peace agreement. Treasury bonds maintained their losses from Monday, as the deadlock in negotiations fueled concerns that rising energy costs would lead to greater inflation, which would compel the Federal Reserve to raise interest rates for longer. The yield on the benchmark 10-year Treasury bond reached 4.45%.

Conflicting Narratives from Trump and Netanyahu

U.S. President Donald Trump and Israeli Prime Minister Benjamin Netanyahu provided conflicting narratives about a phone call regarding fighting in Lebanon, as the U.S. strives to redirect efforts toward reaching a peace agreement with Iran. These conflicting accounts are the latest example of mixed signals regarding progress made in ending the war, which has entered its fourth month.

Yugo Tsuboi, chief strategist at Daiwa Securities, stated, "The disparity between U.S. and Iranian statements is causing some market concern." He added, "The increasing sentiment of rising prices is becoming a driving factor for profit-taking."

While the AI-driven rally continues to push stocks to record levels, markets have experienced sharp fluctuations due to geopolitical events after the escalation of hostilities in the Middle East complicated peace talks. While investors still see potential for an agreement between the U.S. and Iran, the fragile situation in the Strait of Hormuz has kept energy prices in focus as a main driver for inflation expectations and near-term interest rates.

Trump has repeatedly claimed that negotiations are progressing and nearing an agreement, while the ceasefire that began in April remains tenuous. Iran denied reports issued last week regarding the imminent conclusion of a temporary agreement, stating on Monday that it would act through its proxies, referred to as the "Axis of Resistance," against Israel if fighting continues in Lebanon.

AI Companies Spending

Jason Pride and Michael Reynolds of Glenmede said, "Expectations for a U.S.-Iran agreement remain uncertain. Recent strikes and conflicting statements from both sides highlight that key details are still stuck."

In related news, the White House announced its intention to reduce tariffs on agricultural equipment, such as harvesters and farming machinery, to lower costs for American farmers and manufacturers.

During the U.S. trading session, significant focus was placed on corporate spending on AI. The S&P 500 index recorded its eighth consecutive gain, marking its longest winning streak since May 2025.

Alphabet revealed plans to raise $80 billion through a stock offering, including an investment deal with Berkshire Hathaway, highlighting the scale of spending connected to the race to build AI infrastructure.

Anthropic surpassed OpenAI by filing for an initial public offering on Monday, amid competition among startups in AI that are generously spending to secure funding that will determine the winner in the ultimate battle for computational power.

In late trading, Hewlett Packard Enterprise shares rose by 27% after the company issued annual sales forecasts that exceeded estimates, indicating massive growth in demand for its servers and networks, driven by AI.

Stability of the Yen in Japan

In Asia, the yen stabilized at around 159.70 against the U.S. dollar, after Japan's Finance Minister Satsuki Katayama stated that authorities are prepared to take necessary actions in the foreign exchange market. These statements came following the ministry's release of monthly intervention data on Friday.

Investors are also anticipating a new round of economic data, culminating in the May jobs report on Friday, looking for indicators of the health of the U.S. economy and the monetary policy path under the new Fed Chair Kevin Warsh.

Chris Turner, global head of foreign exchange strategy at ING, wrote on Monday: "There is a growing trend towards the potential acceleration of U.S. economic growth with increasing investments in AI across various sectors of the economy."

He added that "the data this week should strongly support this growing narrative, which suggests that the Fed is comfortable with its mandate to achieve full employment and can focus directly on the risks of rising inflation."