Two forces are pulling markets in opposite directions as the week begins. Equities, and Asian chipmakers in particular, are staging a forceful recovery from one of their worst weeks in over a year. Crude, meanwhile, refuses to come down, keeping the inflation issue alive.
Tokyo Buys Back the Panic
Japan's Nikkei 225 led the rebound, climbing sharply as the market reopened from a holiday and reclaiming the 65,000 level it had lost last week. That drop was the steepest weekly fall in more than a year, driven by a global unwind in semiconductor names as investors began to question whether the enormous sums Big Tech is pouring into AI might eventually leave the market oversupplied. This week that move was reversed, as markets are convinced again that the investments will pay off.
The Rally That Needs Earnings to Prove It
The rebound rests on a fragile foundation. Last week's selloff was a valuation scare rather than a fundamental one, as no data confirmed the feared capex glut, but positioning had grown crowded enough that a single cautionary headline was sufficient to trigger a flush. That leaves this week's megacap earnings as the real test. Several of the largest technology and AI-adjacent names report over the coming days, and their guidance on AI spending will either validate the demand thesis or harden the doubts that drove last week's damage. Until those numbers land, we would treat this bounce as relief rather than resolution.
Crude Refuses the Peace Trade
The nagging tension sits in energy. Despite reports that mediators have handed Washington and Tehran fresh proposals to de-escalate, oil has held stubbornly near $90, close to its highest levels in two months. The conflict has now run into its tenth consecutive day, and until a deal is actually signed rather than merely discussed, the market is unwilling to price out the disruption premium built into every barrel. That matters well beyond the oil pit. Sticky, energy-driven inflation is exactly what keeps the Federal Reserve boxed in and the case for rate cuts capped, and it is a large part of why the yen cannot strengthen even as risk appetite returns. USD/JPY remains pinned above 160, well within the zone that has repeatedly drawn intervention warnings from Tokyo, with the rate-differential story still doing more work than any safe-haven bid.
The path of least resistance today favours equities, but it is a case of conditional optimism. A genuine breakthrough in the Iran talks would let oil unwind, ease the inflation overhang, and hand the AI trade back a clean runway. A breakdown in those talks, or earnings that disappoint, would undo the rebound just as easily. For now, the rally is real but unconfirmed, and the barrel remains the tell worth watching.