Asian stocks mostly rise on tech rally, lower yields, and US-China trade hopes

Technology stocks led Asian markets to higher levels on Tuesday, buoyed by falling oil prices and optimism about potential US-Iran talks, while the dollar strengthened on expectations that additional interest rate hikes may be required to combat inflation. Investors are also watching a crucial meeting between US President Donald Trump and Chinese President Xi Jinping later in the week, hoping the leaders can avert further deterioration in bilateral relations.

Xi Jinping visited Washington on Wednesday for the first time in over a decade, amid growing hope for a renewed trade truce between the two economic powerhouses and potential joint efforts in artificial intelligence.

Brent crude futures stabilized around US$100.22 per barrel after falling over 3% in the previous session, briefly dipping below the critical US$100 mark. President Trump expressed willingness to meet Iranian President Masoud Pezeshkian, who is set to attend the UN General Assembly in New York this week, further boosting investor sentiment and contributing to a decline in bond yields.

Lower oil prices played a significant role in the market rally, said Nick Twidale, chief market strategist at ATFX Global. The drop in oil prices has sparked renewed interest in artificial intelligence, mirroring a pattern observed throughout this year. MSCI's broadest Asia-Pacific index outside Japan surged more than 1% in early trading.

Tech-focused South Korean shares jumped nearly 2%, while Taiwan equities were up 1.3%. Japan's markets were closed for a holiday. Nasdaq futures climbed 0.37%, and European futures increased by 0.3%.

The excitement surrounding Meta's Muse AI assistant has fueled optimism about the potential for widespread adoption of persistent AI agents. Chris Weston, head of research at Pepperstone, noted that the hype around Meta Muse is bolstering confidence in the CPU demand profile. The combination of positive sentiment from Meta Muse, lower crude prices, falling Treasury yields, and heightened hopes for the US-China summit has propelled the market rally.

Investors are also bracing for a series of interest rate hikes and hawkish statements from key central banks, which have fueled expectations of further monetary tightening later this year. The dollar has benefited from this scenario, exerting pressure on the yen. The yen was trading at 157.39 per US dollar, near a three-week low, following a disappointing Bank of Japan rate hike last week, which failed to meet market expectations.

The Bank of Japan raised rates to a 31-year high but received two dissenting votes and lacked clear hawkish guidance, leaving the yen vulnerable and prompting concerns about potential intervention.

In contrast, the Federal Reserve raised interest rates last week and signaled that the fight against inflation would continue, keeping the door open for additional rate hikes. The dollar index, which tracks the US currency against six other currencies, reached 100.4, just shy of a seven-week high. Traders are pricing in a 56% chance of a rate hike in October, up from 43.5% a week earlier, according to the CME FedWatch tool.