GLOBAL MARKETS: Oil prices rise with eyes on Iran, UAE; AI concerns weigh on stocks

Oil prices rose on Tuesday as investors assessed the stalemate in the Iran conflict and news that the United Arab Emirates was cutting ties with OPEC, while concerns that the AI boom was losing momentum weighed on equity markets.

U.S. bond prices also slid, with yields up on concern over the effect of high energy prices on inflation.

U.S. President Donald Trump is unhappy with the latest Iranian proposal ​on resolving the two-month war, a U.S. official said, dampening hopes for resolution of a conflict that has killed ‌thousands while disrupting energy supplies and fuelling inflation. The conflict is at an impasse and energy supplies are still unable to transit freely through the Strait of Hormuz.

The UAE said on Tuesday it was quitting OPEC and OPEC+, dealing a blow to the oil-exporting groups and their de facto leader, Saudi Arabia, at a time when the Middle East conflict has caused a historic energy shock. Oil prices briefly pared gains on the news, but Brent was last hovering near a three-week high while WTI broke through $100 per barrel for the first time since April 13.

"The UAE leaving shows how tough it can be to keep a cartel together during tough times," said Brian Jacobsen, chief economic strategist at Annex Wealth Management. "The UAE is OPEC's third-largest producer and the quota it has is well below its capacity."

He said that even if the immediate reaction was muted, "longer-term it gives OPEC a lot less sway over the markets."

U.S. crude CLc1 rose 3.68% to $99.92 a barrel and Brent LCOc1 rose to $111.13 per barrel, up 2.68% on the day.

EARNINGS AND AI IN FOCUS

The tech-heavy Nasdaq Composite underperformed other U.S. indexes as investors questioned whether the artificial intelligence boom could continue to deliver meaningful returns. The Wall Street Journal reported that AI heavyweight OpenAI had missed internal targets for weekly users and revenue, raising concerns over the ChatGPT parent's ability to support its massive spending on data centers.

The Dow Jones Industrial Average .DJI fell 31.64 points, or 0.06%, to 49,136.15, the S&P 500 .SPX fell 35.13 points, or 0.49%, to 7,138.78 and the Nasdaq Composite .IXIC fell 223.30 points, or 0.90%, to 24,663.80.

Tech stocks linked to artificial intelligence, such as Oracle ORCL.N and CoreWeave CRWV.O as well as chip stocks AMD AMD.O and Broadcom AVGO.N, dropped more than 3% each. Despite the day's declines, the broader index of semiconductor stocks .SOX remains up more than 40% so far this year.

"(OpenAI) is giving investors more food for thought, whether the growth is slowing and what that means for capex spending," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. "You've got major hyperscalers coming out with results tomorrow, which probably gives investors even more reason to take a few chips off the table."

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 8.04 points, or 0.53%. The pan-European STOXX 600 index .STOXX fell 0.37%, the emerging market stocks gauge .MSCIEF was down 0.76% and MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.7%. Japan's Nikkei index .N225 fell 1% after hitting a record high on Monday.

Investors are also focusing on earnings from U.S. tech giants Microsoft MSFT.O, Alphabet GOOGL.O, Amazon AMZN.O, Meta Platforms META.O and Apple AAPL.O, which will further test the AI-driven rally.

Higher oil prices continued to lift inflation expectations. The 2-year Treasury note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 3.1 basis points to 3.836%, compared with 3.805% late on Monday.

Will Compernolle, macro strategist at FHN Financial, said the rise in yields was following the rise in oil prices.

“That could really just be from the erratic sentiment ... It seems like the day-to-day market mood about U.S.-Iran changes even if the underlying fundamentals are the same,” he said.

The yield on benchmark U.S. 10-year notes US10YT=RR rose 1 basis point to 4.346%, from 4.336% late on Monday, while on the long end the 30-year bond US30YT=RR yield dipped 0.6 basis point to 4.9358%, from 4.942%.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.19%. The British pound fell 0.1% against the dollar and the euro was little changed GBP=, EUR=.

The dollar has been one of the few safe-haven assets during the Iran conflict, although it has given up a large part of its March gains in the last few weeks.

BANK OF JAPAN SPLIT ON RATES

The BOJ left short-term rates unchanged at 0.75%, in the first of several central bank meetings this week that could provide evidence of the Middle East conflict's economic impact.

The yen JPY=EBSbriefly strengthened on the view that a rate hike was now in play, but was last 0.12% lower at 159.6 per dollar. A breach beyond the 160-per-dollar threshold would put markets on alert that Tokyo might step in to support its currency.

The U.S. Federal Reserve, the Bank of England and the European Central Bank are due to announce decisions later this week.

All are expected to keep rates unchanged but market attention will be on comments from policymakers on pricing pressure.

-Rodrigo Campos/Reuters