Singapore: Global markets were showing signs of relief on Wednesday as falling oil prices helped ease some of the pressure caused by the Iran conflict, while investors waited for the latest earnings results from Nvidia, one of the world's most closely watched technology companies.
Asian stocks mostly moved higher during trading, supported by lower energy prices and continued interest in artificial intelligence companies. Japan's Nikkei 225 gained about 0.6 percent, South Korea's Kospi rose 1.6 percent, Hong Kong's Hang Seng increased 0.8 percent and the Shanghai Composite also moved higher. Australia's market was weaker, showing that investors remained cautious despite the broader improvement in sentiment.
The decline in oil prices was one of the main reasons behind the better mood. Brent crude fell for a third consecutive day, trading near 86 dollars a barrel, while US crude dropped towards 80 dollars. The fall followed renewed diplomatic efforts involving Iran and Oman over the Strait of Hormuz, an important shipping route for global oil supplies.
The possibility of restoring some shipping through the waterway has given investors hope that the disruption to energy markets could ease. Iran has restarted discussions with Oman about managing traffic through the strait, while other countries have also been involved in efforts to support diplomacy.
The Strait of Hormuz remains extremely important to the world economy because a large share of internationally traded oil normally passes through it. The conflict has therefore created fears that a prolonged closure could send energy prices sharply higher and add to inflation in countries that depend on imported fuel.
For now, the fall in oil prices is providing some relief. Lower energy costs can reduce pressure on household budgets and business expenses and may also make it easier for central banks to consider lower interest rates if inflation continues to cool.
Bond markets have already reacted to the change in expectations. The yield on the US 10 year Treasury note fell to around 4.63 percent, down from higher levels seen earlier in the week. Lower bond yields can support stock markets because they reduce borrowing costs and make shares relatively more attractive to investors.
However, the market remains far from calm. Investors are watching developments in the Middle East closely because the improvement in oil prices depends heavily on expectations of diplomatic progress. A breakdown in negotiations or another serious incident around the Strait of Hormuz could quickly push oil prices higher again.
At the same time, attention has turned strongly towards Nvidia. The US chipmaker is due to release its latest financial results, and investors are looking for evidence that the enormous spending on artificial intelligence remains sustainable.
Nvidia has become one of the most important companies in the global technology market because its advanced chips are widely used to build artificial intelligence systems. Its results have therefore become a broader test of whether the artificial intelligence investment boom can continue.
Investors are particularly interested in Nvidia's sales outlook and guidance for future quarters. Strong results and an optimistic forecast could encourage investors to continue buying technology stocks. A disappointing outlook, however, could raise fresh concerns about expensive valuations across the artificial intelligence sector.
The company is entering the results announcement after a period of volatility in technology shares. Investors have increasingly questioned whether some artificial intelligence companies have risen too quickly and whether the huge amounts of money being spent on data centres and computing equipment can eventually produce enough profits to justify those valuations.
Currency markets are also being watched. The US dollar has remained relatively soft, while gold has stayed close to recent highs at around 4,650 dollars an ounce. The strength of gold shows that some investors are still seeking protection against geopolitical uncertainty, inflation and concerns about government debt.
China presents another complicated part of the global market picture. Chinese shares have benefited from the broader improvement in sentiment, but the country's economy continues to face challenges including weak domestic demand and pressure in the property sector. The Chinese yuan has also strengthened significantly this year, creating concerns about the effect of a stronger currency on exporters.
Markets are now entering an important period in which several major developments could determine the direction of trading. Nvidia's results, US inflation data and the Federal Reserve's upcoming policy signals will all be closely watched.
The current rise in global markets therefore appears to be based more on cautious optimism than complete confidence. Falling oil prices have provided welcome relief, but investors know that the geopolitical situation can change quickly.
For now, the combination of lower energy prices, easing bond yields and strong demand for artificial intelligence shares is helping markets recover. But with the Middle East conflict unresolved and investors facing important economic and corporate news, the calm could remain fragile.
The coming days will show whether the latest improvement marks the beginning of a more sustained recovery or simply a temporary pause in a period of continuing global uncertainty.