Asian Markets Tumble on AI Selloff, West Asia Tensions

GLOBAL MOOD: Risk Off
Drivers: Breakdown in Lebanon Ceasefire, Persistent Geopolitical Conflicts

Asia Pacific markets declined sharply on Friday as renewed weakness in global technology and artificial intelligence-linked stocks weighed on sentiment, while investors remained cautious amid fragile US-Iran ceasefire negotiations and persistent geopolitical uncertainty in West Asia.

Japan’s Nikkei 225 fell 1.74% to 66,294.87, extending losses after concerns over the AI trade resurfaced following a weak outlook from Broadcom. Australian shares also weakened, with the ASX 200 declining 0.68% to 8,627.3 as softer US equity futures and concerns over stalled US-Iran talks dampened risk appetite ahead of the Reserve Bank of Australia’s policy meeting.

South Korea’s KOSPI slumped 6.11% to 8,111.91, leading regional losses, while Singapore’s STI declined 1.38% and China’s Shanghai Composite edged marginally lower. Investors also monitored expectations for tighter monetary policy in Japan after data showed real wages rose for a fourth consecutive month, strengthening the case for another Bank of Japan rate hike later this month.

THE BIG STORY
Efforts to secure a broader diplomatic settlement in West Asia suffered a setback after Hezbollah rejected a new US-backed ceasefire proposal in Lebanon. At the same time, Israel said its military operations in the country would continue. The development complicated attempts by Donald Trump to broker a wider agreement with Iran aimed at easing regional tensions and stabilising energy markets.

Iran has repeatedly linked any long-term agreement with Washington to a halt in Israeli operations in Lebanon. However, Hezbollah leader Naim Qassem rejected the proposed ceasefire arrangement, arguing that Hezbollah had not been directly involved in negotiations. Israel simultaneously continued strikes in southern Lebanon, with Defence Minister Israel Katz confirming that Israeli forces would neither withdraw from southern Lebanon nor halt military operations. Iranian officials also increased pressure on Israel. The commander of Iran’s Quds Force warned that Israel must at minimum retreat to positions held before the conflict began, reinforcing fears that Tehran or its regional allies could become more directly involved if fighting escalates further.

Separately, diplomatic efforts around the Russia–Ukraine war also intensified. Volodymyr Zelenskiy published an open letter proposing direct talks with Vladimir Putin to negotiate an end to the conflict. Zelenskiy argued that growing economic pressure, inflation and continued attacks had increased public fatigue within Russia and urged negotiations backed by a monitored ceasefire along the frontline. Putin maintained a hardline position, saying Russian forces continued advancing on the battlefield, although he also indicated that Trump-backed peace proposals could eventually help end the war if Ukraine accepted compromises. Trump separately said a direct meeting between the two leaders would be positive.

Data Spotlight
Initial jobless claims in the US rose by 13,000 to 225,000 in the last week of May, above market expectations of 212,000 and the highest reading since early February. Despite the increase, continuing claims eased by 8,000 to 1.777 million, suggesting the broader labour market remained relatively resilient with layoffs still contained by historical standards. Claims filed by federal employees also increased modestly amid ongoing efforts to reduce public-sector staffing levels.

Meanwhile, US unit labour costs in the nonfarm business sector rose 1.8% in Q1 2026, slowing from a revised 2.1% increase in the previous quarter and below the earlier estimate of 2.3%. The moderation reflected slower growth in hourly compensation, which rose 2.1% compared with 3.7% in Q4 2025. Productivity growth also weakened sharply to 0.3% from 1.6%.

Takeaway:
The US labour market continued to show resilience despite a moderate rise in jobless claims, while easing labour cost growth suggested some moderation in wage-driven inflation pressures, although conditions remained firm enough to support a restrictive Federal Reserve policy stance.

WHAT HAPPENED OVERNIGHT

• US stocks rose on West Asia peace hopes, lifting markets, but Broadcom chip sell-off drags Nasdaq lower
  • The Dow surged 1.73% to a record closing high, the S&P 500 gained 0.41%, while the Nasdaq slipped 0.09%.
  • Progress towards ending the Iran war lifted investor confidence, with a US-mediated ceasefire between Israel and Lebanon raising hopes of a near-term resolution.
  • However, pro-Iran Hezbollah rejected the truce, saying it would not withdraw troops from Lebanon, keeping a full resolution out of reach.
  • Broadcom missed revenue expectations, sending its shares tumbling 12.6% and casting a shadow over the AI rally that has driven chip stocks up over 92% this year.
  • UnitedHealth jumped 5.2% after Bank of America upgraded its shares to "buy".
  • Blackstone rose 7.5% despite capping withdrawals from its flagship private credit fund.
  • Initial jobless claims rose an unexpected 6.1%, while US corporate layoffs jumped 11% in May to 97,006.
  • Nearly 40% of those layoffs were attributed to AI, as SpaceX kicked off its investor roadshow ahead of a record $75 billion IPO targeting a $1.75 trillion valuation.
    
• US Treasury yields eased as oil prices retreated on ceasefire hopes
  • The US 10-year Treasury yield fell around 4 basis points to 4.46% on Thursday.
  • The move nearly reversed the previous session’s sharp rise in yields.
  • Treasury prices gained support after oil prices declined on optimism surrounding a possible Israel–Lebanon ceasefire.
  • Despite improving sentiment, geopolitical uncertainty in West Asia remained elevated and fragile.
  • Oil prices also remained significantly above pre-conflict levels, keeping inflation concerns alive.
  • Markets continued pricing in the possibility of a Federal Reserve rate hike before year-end, potentially as early as October.
  • Expectations for tighter policy remained supported by resilient US labour market conditions.
  • Recent data showed strengthening employment trends over the past two months.
    
• The US Dollar eased as ceasefire hopes reduced immediate safe-haven demand
  • The US dollar index slipped to 99.2 on Thursday, ending a three-session winning streak.
  • The greenback weakened slightly after oil prices retreated on hopes of easing tensions in West Asia.
  • Investors reacted positively to reports that a ceasefire agreement between Israel and Lebanon could support broader diplomatic progress with Iran.
  • Despite the pullback, geopolitical uncertainty remained elevated, and the dollar continued trading near two-month highs.
  • Oil prices also remained well above pre-conflict levels, keeping inflation concerns in focus.
  • Markets continued pricing in the possibility of a Federal Reserve rate hike before year-end, potentially as early as October.
  • Expectations for tighter monetary policy remained supported by resilient US labour market conditions.
    
• Oil prices slide 3% on hopes of West Asia ceasefire and Strait of Hormuz reopening
  • Brent crude settled 2.84% lower at $95.03 a barrel, while US West Texas Intermediate dropped 3.1% to $93.04, reversing the previous session's gains.
  • The Israel-Lebanon ceasefire raised hopes of a broader US-Iran deal, as Tehran had linked any agreement to an end of the Israel-Hezbollah fighting.
  • Ship repositioning near the Persian Gulf has sparked hopes that the Strait of Hormuz could reopen sooner than expected.
  • The US House of Representatives passed a resolution to block Trump from continuing the war against Iran.
  • It would need Senate approval and a two-thirds majority in both chambers to override a likely Trump veto.
  • US crude stockpiles fell by 8 million barrels to 433.7 million barrels in the week ended 29 May, double the 4-million-barrel draw analysts had forecast.
  • Iranian oil slipped into discounts for the first time since April.
  • Russian crude premiums eased as traders cut prices to attract Chinese buyers amid sluggish demand.

Day’s Ledger* 

Economic Data

• India January-March GDP Data
  
• US May Non-farm Payrolls Data
  
• UK May Halifax House Price Index  

Corporate Actions

• Hardwyn India board to consider bonus share issue
  
• Valecha Engineering board to consider earnings

Policy

• RBI MPC Interest Rate Decision
  
• BoE Gov Bailey Speaks 

Tickers to Watch

• AUROBINDO PHARMA received final USFDA approval for Tofacitinib Tablets (5 mg and 10 mg), the generic version of Xeljanz, with immediate commercial launch planned from its APL Healthcare Unit IV facility.
• AVENUESAI informed that its step-down subsidiary, Avenues World FZ LLC, received in-principle approval from the Central Bank of the UAE for a Retail Payment Services Category III licence.
• CG POWER AND INDUSTRIAL SOLUTIONS commissioned a new extra-high-voltage (EHV) switchgear manufacturing facility in Nashik, expanding its power transmission equipment capacity.
• HDFC Mutual Fund has temporarily restricted lump-sum subscriptions in its Gold ETF and Gold ETF Fund of Fund due to prevailing market and economic conditions.
• INTERGLOBE AVIATION (INDIGO) will temporarily suspend services to Langkawi, Krabi, Ho Chi Minh City, Hong Kong, Shanghai and Siem Reap between July and September 2026, citing softer seasonal demand and a challenging cost environment. 

Must Read

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• What is More Desirable from a Central Bank – Surplus or Strength?
• Keynes Was Doing Buffett Before Buffett Was Born
• Unilever's India Party Meets Reliance's Guest List
• Health Cess Promise Lost in Fiscal Accounting
• The US and India Have Become Regional Rivals
• The Rupee Does Not Need a Speaking Role in Monetary Policy
  
  

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day

El Nino May Lower Harvest; But Won’t Compromise Food Security

El Niño warnings are growing louder.

Rainfall forecasts have been downgraded. Reservoir levels are under pressure. Heatwaves have already depleted soil moisture across parts of the country.

G Chandrasekhar writes, but does a weaker monsoon automatically translate into a food security crisis?

India enters this season with significant grain stockpiles and a range of policy tools at its disposal. The bigger question may not be whether there will be enough food—but what happens to prices, farm incomes, and inflation if harvests disappoint.

Is India better prepared for El Niño than many believe?

(*Compiled from various media sources)