AI rally pauses as Middle East ceasefire goes on ‘life support’

SINGAPORE/SEOUL – Oil crept higher and the dollar rose on Tuesday, May 12, as hopes faded for a deal to get ships moving through the Strait of Hormuz, while a red-hot rally in chip stocks cooled and traders waited on US inflation figures.

US President Donald Trump said the month-old ceasefire with Iran was “on life support” after Tehran’s response to a US plan to end the war made clear the sides were far apart.

Brent crude futures were up 0.6% to about $105 a barrel. S&P 500 futures dipped 0.2%, FTSE futures fell 0.5% and European futures slipped 0.6%.

The shine even came off the almost unstoppable KOSPI index in Seoul, which recoiled as it approached 8,000 points and dropped about 3.5%, pulling down other regional markets.

“While there is little significance to the figure of 8,000 itself, it is up 60% from 5,000 in late March, which is not common,” said Huh Jae-hwan, an analyst at Eugene Investment Securities.

The stunning rally has spurred such an increase in stock trading in South Korea that it helped brokerage Mirae Asset Securities to almost quadruple first-quarter profit thanks to a record surge in commissions.

Elsewhere, MSCI’s broadest index of Asian shares excluding Japan fell 0.6%, while Tokyo’s Nikkei was bumpy but gained about 0.6%.

Markets are keeping a watchful eye on Trump’s visit to China, which begins on Wednesday, May 13, with expectations low for either progress on Iran or on the trade front.

“Investors should not expect sweeping agreements. A ‘win’ would mean no new tariffs or export controls, and perhaps small symbolic deals, such as agricultural purchases, aircraft orders, or signals on rare earths,” said Daniel Casali, chief investment strategist at Evelyn Partners.

“These may seem minor, but stability at the margin matters.”

Wall Street has been resilient in the face of rising oil prices, with the S&P 500 and Nasdaq eking out the latest in a series of new closing highs on Monday, May 11.

April inflation spike expected in US data

US inflation data is due later on Tuesday, with the headline consumer price index seen posting a 3.7% year-on-year increase, after a 3.3% rise a month earlier.

Any suggestion that the Federal Reserve may need to hike interest rates this year – rather than cut as investors had expected before the war – could rattle markets.

Global bond yields have climbed, led by a selloff in UK government bonds after a speech by Prime Minister Keir Starmer on Monday did little to dispel investor doubts about his political survival, following Labour’s heavy defeat in local elections.

Japan’s 10-year government bond yield rose to a 29-year high of 2.54% as a hawkish readout from last month’s Bank of Japan meeting left the door open for a June rate hike.

Benchmark 10-year US Treasury yields were steady at 4.42%.

In the foreign exchange market, the dollar was on the front foot and that kept Asia’s emerging market currencies under pressure, with Indonesia’s rupiah and India’s rupee hitting record lows.

The dollar rose to 157.62 per yen. After meeting with Japanese Finance Minister Satsuki Katayama in Tokyo, US Treasury Secretary Scott Bessent said on social media platform X that coordination with Japan was “constant and robust” in tackling undesirable, excessively volatile currency moves.

The euro slipped 0.2% to $1.1762 and the Australian dollar fell 0.25% to $0.7232. Australia’s government is expected to deliver a narrower budget deficit than previously flagged on Tuesday. – Rappler.com