World Stocks Steady As AI Rally Offsets Oil Shock; ASML Lifts Chip Sector While...

World equity markets traded cautiously on Wednesday as renewed enthusiasm for artificial intelligence-related stocks, sparked by stronger-than-expected results from Dutch chip equipment giant ASML, offset rising geopolitical tensions after fresh hostilities involving Iran pushed oil prices higher.

The mixed performance highlighted the competing forces driving global markets: optimism over AI-driven corporate earnings and technology investment on the one hand, and mounting geopolitical and inflation risks on the other.

The pan-European STOXX 600 index slipped 0.05% by 0849 GMT after posting strong gains in the previous session, when weaker-than-expected U.S. inflation data boosted expectations that the Federal Reserve could keep interest rates unchanged in the near term.

Technology-heavy markets outperformed. Nasdaq futures climbed 0.5%, South Korea's KOSPI surged 6.2%, while Japan's Nikkei 225 advanced 1.5%, reflecting renewed investor appetite for semiconductor and AI-related stocks.

"The divergence between the U.S. and Europe seems to be driven mainly by technology stocks, which are outperforming again," said Swissquote senior analyst Ipek Ozkardeskaya.

"ASML's results came in sweet."

The MSCI World Price Index edged up less than 0.1%.

The latest rally was driven by ASML, the world's largest supplier of semiconductor manufacturing equipment, after the Dutch company raised its 2026 financial forecasts and unveiled plans to expand production capacity, citing sustained demand for advanced chipmaking tools used in artificial intelligence applications.

The company also delivered quarterly earnings that exceeded market expectations, sending its shares up as much as 8% in Amsterdam and lifting semiconductor stocks globally.

The upbeat outlook helped restore confidence in AI-related equities after recent volatility triggered by concerns that valuations had run ahead of earnings fundamentals and questions over whether massive AI infrastructure spending by technology companies would generate sufficient returns.

The renewed optimism also comes as semiconductor companies continue to benefit from unprecedented capital expenditure by hyperscale cloud providers including Microsoft, Amazon, Alphabet and Meta, which are collectively spending hundreds of billions of dollars to expand AI computing infrastructure.

South Korea's technology-heavy market was among the biggest beneficiaries of the improved sentiment, with investors returning to chipmakers after several weeks of profit-taking.

Markets Balance AI Optimism Against Geopolitical And Monetary Policy Risks

While AI-driven gains supported equity markets, investor sentiment remained restrained by escalating tensions in the Middle East.

Oil prices extended gains after President Donald Trump reimposed a naval blockade on Iranian ports and Tehran launched strikes targeting U.S. infrastructure in the region, raising fears of further disruptions to energy supplies. Brent crude futures rose 0.7% to $85.31 per barrel, increasing concerns that higher energy costs could eventually complicate the global inflation outlook.

Those concerns partly offset the positive impact of Tuesday's softer U.S. inflation report.

Data released a day earlier showed headline U.S. consumer prices fell 0.4% in June, marking the first monthly decline since the COVID-19 pandemic, while core inflation was unchanged, reinforcing expectations that inflationary pressures are easing.

The figures prompted investors to scale back expectations of another near-term Federal Reserve interest rate increase.

U.S. Treasury yields and the dollar fell sharply after the inflation data. Although two-year Treasury yields edged up one basis point to 4.2% on Wednesday, they remained roughly nine basis points below Tuesday's 17-month high.

The euro held above $1.14 against the dollar, reflecting the broad weakness in the U.S. currency following the inflation report.

"For market bulls this is even better than Goldilocks could have imagined," J.P. Morgan analysts said in a client note.

"This print should remove any fears over a July rate hike and may assuage fears on September, too. This sets up the market to move higher and to broaden as it does so."

However, Federal Reserve Chair Kevin Warsh cautioned lawmakers that one encouraging inflation report was insufficient to conclude that inflation had been defeated, tempering market optimism.

Investors will closely monitor Warsh's second day of congressional testimony later Wednesday, alongside U.S. producer price inflation data and the Federal Reserve's Beige Book, for additional clues on the central bank's policy trajectory. Attention is also turning toward the corporate earnings season, which is increasingly becoming a key driver of market direction.

Morgan Stanley, BlackRock, and Johnson & Johnson are scheduled to report results before the opening bell, following stronger-than-expected earnings from Goldman Sachs, JPMorgan Chase, and Bank of America that reinforced confidence in the resilience of the U.S. banking sector despite elevated interest rates.

Strong bank earnings have helped justify lofty equity valuations and strengthened hopes that corporate America can continue delivering earnings growth even as economic activity slows.

Elsewhere, investors are awaiting the Bank of Canada's latest monetary policy decision, with the Canadian dollar trading broadly steady at 1.4051 per U.S. dollar. In China, official data showed the world's second-largest economy expanded 4.3% year-on-year in the second quarter, falling short of analysts' expectations as persistent weakness in domestic demand outweighed resilient exports and industrial production.

While softer growth highlighted ongoing structural challenges, stronger-than-expected June retail sales and hopes for targeted government stimulus helped cushion investor sentiment.

"I don't think they will be worried enough to announce any big stimulus, but it is going to be targeted, since they are aware that growth is only for the tech areas whereas the broader economy is continuing to underperform," said UOB economist Woei Chen Ho.

China's yuan traded at 6.7715 per dollar, just below a one-month high.

Meanwhile, gold prices retreated after surging more than 2% in the previous session. Spot gold fell 0.7% to $4,023.70 an ounce as rising oil prices revived inflation concerns and investors reassessed the outlook for U.S. monetary policy.

While the combination of improving inflation data, resilient corporate earnings and renewed enthusiasm for AI has strengthened the case for risk assets, geopolitical tensions and uncertainty over central bank policy continue to limit broader market gains. Investors are increasingly balancing optimism surrounding the AI investment cycle against risks from higher energy prices, slowing global growth and ongoing conflicts that could quickly alter the inflation outlook.