Tech rally boosts Asian stocks, dollar firms on rate-hike wagers

Technology stocks propelled Asian markets higher on Tuesday, as lower oil prices and investor optimism over potential US-Iran talks lifted sentiment. The dollar also remained strong, driven by expectations of additional interest rate hikes to curb inflation. The meeting between US President Donald Trump and Chinese President Xi Jinping later this week is under scrutiny, with investors awaiting signs that the two world leaders can prevent a further deterioration in their strained relations.

Xi Jinping arrived in Washington on Wednesday for his first visit to the US in over a decade, amid positive expectations of an extended trade truce and possible cooperation on artificial intelligence (AI).

Brent crude futures steadied at $100.22 per barrel, after falling over 3% the previous day, briefly dipping below the $100 threshold. President Trump indicated willingness to meet Iranian President Masoud Pezeshkian, whose presence in New York for the UN General Assembly helped boost sentiment and push bond yields lower. MSCI’s Asia-Pacific index outside Japan climbed over 1%, with tech-heavy South Korean stocks jumping nearly 2% and Taiwan shares increasing by 1.3%. Japanese markets were closed for a holiday on Tuesday.

The excitement surrounding Meta's Muse AI assistant contributed significantly to AI-related enthusiasm. China's blue-chip stock index rose 0.75%, while Hong Kong's Hang Seng index gained 0.4%. China and Hong Kong's AI stocks also surged. "The excitement around Meta Muse is adding weight to the idea that millions of people could eventually use persistent AI agents," said Chris Weston, head of research at Pepperstone.

Rate hikes and hawkish signals from major central banks, including the Federal Reserve and the Bank of Japan, are adding to the dollar's strength and putting pressure on the yen. The yen weakened to 157.39 per US dollar, nearing a three-week low, following the Bank of Japan's recent rate hike to a 31-year high. However, two dissenting votes and insufficient hawkish guidance disappointed investors, raising concerns about potential currency intervention by the Japanese authorities.

The Federal Reserve raised rates last week and signaled that the fight against inflation was ongoing, maintaining the possibility of further tightening. Currently, traders price a 56% chance of a rate hike in October, up from 43.5% the previous week, according to the CME FedWatch tool.