Asian stocks fell as technology shares' rally faltered, while investors awaited further developments in peace talks between the United States and Iran.
The MSCI regional stock index fell by more than 1% after closing at a record high on Monday, and South Korea's Kospi index dropped by about 5%.
A sub-index of Asian technology stocks also retreated after an eight-day winning streak, as investors sold off some of the year's best-performing shares. S&P 500 futures fell, while Nasdaq 100 futures dropped 0.8%.
The moves came after a decline in tech giant stocks and a rise in bond yields pushed the S&P 500 down 0.4% on Monday. SpaceX shares plunged 16% for the third straight day of losses, wiping hundreds of billions of dollars off the company's value, after it announced it was selling investment-grade bonds in what is expected to be a massive borrowing spree.
Fabian Yep, a market analyst at the online brokerage firm IG International, said that overnight weakness in tech giant stocks was weighing on market sentiment. He added: “While the peace agreement between the United States and Iran continues to make progress, there are still fundamental differences in how the two countries interpret the terms.”
Brent crude rose slightly to trade above $78 a barrel, after falling more than 3% on Monday, when both Washington and Tehran indicated progress in the first round of talks toward a lasting peace agreement.
The United States also issued a 60-day license allowing Iran to sell oil on the international market, giving it an economic lifeline, but some discrepancies emerged, as US Vice President J.D. Vance said that Iran had agreed to allow nuclear inspectors into the country, which Tehran denied.
Micron results under scrutiny
In currency markets, the Japanese yen remained near its lowest level since 1986. Currency traders remained on high alert for potential government intervention following a call between Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bisent. The Bloomberg Dollar Index was little changed after rising 0.2% on Monday.
Attention turns to the quarterly results of memory chip maker Micron Technology Inc. on Wednesday, which will be a crucial test of whether spending on artificial intelligence can sustain the upswing, with the company's stock up more than 300% this year, and the technology having a significant impact on the broader upswing in the technology sector as a whole.
AI trading has been a key pillar of global stock markets this year, helping a global stock index overcome the challenges posed by the Middle East conflict to record consecutive record highs, the latest of which was on June 2.
Expectations of a peace agreement, coupled with strong corporate earnings, fueled a 14% gain in the S&P 500 this quarter through Monday. However, this falls short of the 26% surge in the MSCI Asia Pacific index. Standard indices in Taiwan, South Korea, and Japan's Nikkei 225 have each jumped by at least 40%.
Billy Leong, investment strategist at Global X Management in Sydney, said: “Asian markets are following a rotation already underway in the US, not a new risk aversion. Cloud computing giants have been leading the decline due to concerns about AI capital spending and negative cash flow worries.”
Markets are awaiting US inflation data.
Meanwhile, Treasury bonds fell on Monday as trading resumed after a public holiday in the United States, even as oil prices turned lower.
Strategists pointed to Federal Reserve Chairman Kevin Warsh's hawkish remarks last week as one reason for the selling pressure. Bond traders are looking to US personal spending data this week for an early indication of whether the market's new hawkish stance is justified.
In other markets, gold fell by about 1%, while silver lost more than 2%. Bitcoin also declined slightly.
Leung of GlobalX said that the shift of the Iran talks to lower-level technical discussions keeps some uncertainty in place, but the real swing factor this week remains Thursday's core personal consumption expenditures index.
