Stocks drop on concerns over Middle-East, AI

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.2%, pulling back for a second day from record highs set on Monday

Markets got off to an uneven start in Asian trading on Wednesday as worries about the Iran war and health of the AI sector dominated and earnings from tech megacap stocks later in the session.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.2%, pulling back for a second day from record highs set on Monday, led by declines for Taiwanese chipmakers. Japanese markets were closed for a holiday.

S&P 500 e-mini futures nudged up 0.1%, while Brent crude gained 0.4% to $111.71 per barrel as efforts to end the Iran war hit an impasse.

Markets remained cautious overnight as peace talks continued to stall, with Iran seeking the lifting of the U.S. blockade of the Strait of Hormuz and mediators expecting a revised Iranian proposal in coming days, analysts from Westpac wrote in a research note.

Tech shares also took a hit after the 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 centres. The report weighed on shares of Oracle and CoreWeave.

Market attention will also turn to the outcome of the U.S. central bank’s April meeting later on Wednesday, which will be Jerome Powell’s last as central bank chair.

Traders believe a hold is a certainty. Fed funds futures are pricing an implied 100% probability the central bank will stand pat, with no policy changes expected until late in 2027, according to the CME Group’s FedWatch tool.

Given the challenging war-impacted inflation environment, it won’t cost much for the Fed to adopt a hawkish tilt; while remaining in a wait-and-see mode, analysts from ING wrote in a research report. There will also be questions on the incoming Kevin Warsh and Powell’s intention to stay or go.