Risk sentiment remained firmly positive to start June, with US equity futures pointing to fresh record highs despite a renewed escalation in Middle East tensions and a sharp rebound in oil prices.
US markets continued to draw support from the AI-driven rally, as strong corporate earnings and optimistic business guidance reinforced investor confidence. Semiconductor stocks remained at the center of the advance, with Nvidia and Microsoft extending gains after Nvidia CEO Jensen Huang downplayed concerns that artificial intelligence would disrupt software companies. The semiconductor sector is now on track for its strongest quarter on record, helping push US equities toward new highs.
Economic data also provided support for risk assets. The US ISM Manufacturing PMI rose to 54.0, beating expectations of 53.0 and improving from 52.7 previously, signaling continued expansion in manufacturing activity. Meanwhile, UK inflation expectations eased, with the CII/YouGov survey showing one-year-ahead inflation expectations falling to 4.7%, offering some encouragement for policymakers.
In Europe, traders fully priced in a 25-basis-point ECB rate hike in June for the first time in nearly a month, reflecting expectations that inflation pressures remain persistent. European equities underperformed slightly, however, as investors monitored developments in the Middle East.
Geopolitical tensions remained elevated throughout the session. Israel warned residents of Beirut's southern suburbs to evacuate and threatened further strikes if Hezbollah attacks continue. Iran-backed media reported discussions around disrupting traffic through both the Strait of Hormuz and Bab el-Mandeb, while Tehran suspended message exchanges with Washington in protest over Israeli actions. At the same time, Iranian President Pezeshkian attempted to reassure global markets, stating that Iran remains committed to facilitating safe maritime traffic through Hormuz, particularly for Asian trading partners.
The conflict intensified further after US CENTCOM reported intercepting two Iranian ballistic missiles targeting US forces in Kuwait, while both Washington and Tehran exchanged accusations regarding military operations over the weekend. The mixed messaging left investors uncertain over the prospects for a lasting US-Iran agreement.
Oil prices rebounded sharply as a result, with Brent crude climbing nearly 3% toward $94 per barrel, ending a three-day decline. Treasury yields also moved higher, with the US 10-year yield rising as investors reduced demand for safe-haven bonds.
Despite the geopolitical uncertainty, markets largely chose to focus on strong economic data, robust earnings, and continued enthusiasm surrounding artificial intelligence. For now, investors appear more willing to reward growth and technology opportunities than price in the escalating geopolitical risks, although developments surrounding Iran, Israel, and the Strait of Hormuz remain key risks to monitor in the days ahead.
By Amir Amidian
Senior Market Analyst | Zylostar
