GLOBAL MARKETS: Stocks drop as AI rally pauses, US-Iran peace talks stall

SINGAPORE — Asian equity markets fell sharply on Friday as investors locked in profits from technology stocks and shifted to safer assets ahead of the weekend, amid renewed concerns over escalating Middle East tensions and stalled U.S.-Iran peace negotiations.

Sentiment weakened after Iran-backed Hezbollah rejected a proposed ceasefire in Lebanon on Thursday, while Israel signaled it would not withdraw troops from the country. The developments further complicated diplomatic efforts led by U.S. President Donald Trump to end the conflict and advance negotiations with Iran.

Adding to market pressure, a broad selloff in artificial intelligence-related stocks extended into a second session after chipmaker Broadcom delivered weaker-than-expected results earlier in the week.

The combined headwinds pushed MSCI’s broadest index of Asia-Pacific shares excluding Japan down 1.8%. South Korea’s benchmark Kospi plunged as much as 7%, while Japan’s Nikkei slipped 1.6%.

Market analysts described the session as a clear “risk-off” move, driven by a reassessment of lofty expectations in the semiconductor and AI sectors rather than a collapse in underlying demand.

“Korea has been one of the biggest beneficiaries of the AI memory supercycle, so when Broadcom disappointed on AI expectations, investors quickly de-risked the entire semiconductor chain,” said Charu Chanana, chief investment strategist at Saxo.

She added that investor expectations had become stretched, leaving even solid earnings insufficient unless companies continued to raise forward guidance.

U.S. and European equity futures also softened. Nasdaq and S&P 500 futures fell, while European contracts for the STOXX 50, DAX, and FTSE indexes showed modest declines or flat trading.

Cryptocurrencies extended recent losses. Bitcoin fell more than 1%, heading for its steepest weekly decline since the collapse of FTX in 2022, while ether also weakened.

Oil Heads for Weekly Gain

Oil prices were largely steady but remained on track for a strong weekly advance, supported by heightened geopolitical risk and uncertainty surrounding U.S.-Iran talks.

Brent crude and U.S. West Texas Intermediate both posted gains for the week, as traders weighed the risk of prolonged disruptions to energy flows, particularly through key shipping routes in the Middle East.

Kristian Kerr, head of macro strategy at LPL Financial, said markets may be underestimating the logistical challenges of restoring normal oil flows even if a diplomatic framework is reached between Washington and Tehran.

He noted that any near-term increase in supply would likely come from existing stockpiles and stored cargo rather than a full recovery in production or exports.

Dollar Supported by Safe-Haven Demand

In currency markets, the U.S. dollar was on track for a weekly gain, supported by geopolitical uncertainty.

The Japanese yen hovered near the 160 level per dollar, prompting renewed warnings from Japanese authorities about currency weakness and raising expectations of potential intervention. Japan’s foreign reserves also declined sharply in May, according to official data released Friday.

The euro and British pound traded relatively steady against the dollar.

Attention now turns to upcoming U.S. nonfarm payrolls data, a key indicator for assessing the strength of the labor market and its implications for monetary policy.

Economists expect moderate job growth, with the unemployment rate likely holding steady. Stronger-than-expected data could further reduce expectations of a rate cut by the Federal Reserve.

Gold Softens

Gold prices eased on the day but remained influenced by broader safe-haven flows tied to geopolitical uncertainty.

Overall, markets ended the week on a cautious footing as investors balanced fragile diplomatic developments, shifting expectations in artificial intelligence-driven equities, and growing macroeconomic uncertainty. -Reporting by Rae Wee; Editing by Kate Mayberry/Reuters