Global markets entered Tuesday with a clear risk-on tone as renewed enthusiasm surrounding artificial intelligence pushed technology stocks higher, while falling US Treasury yields provided additional support to equities.

However, beneath the stock-market rally, monetary policy remains a major source of volatility. Expectations that global central banks may need to keep interest rates higher, or raise them further, are supporting the US Dollar, pressuring the Japanese Yen and weighing on Gold.

Oil has also returned to the spotlight. Crude prices rebounded after four consecutive sessions of losses as markets assessed the prospects for diplomatic engagement between the United States and Iran, alongside persistent supply risks in the Middle East.

AI Optimism Sends the NASDAQ to a Record High

Technology stocks were the strongest performers at the beginning of the week as investors returned aggressively to the AI trade.

The NASDAQ Composite rose 2.26% to a record closing level of 27,122.09, while the S&P 500 gained 1.49% to 7,764.70. The Dow Jones added 0.71%, closing at 52,048.83.

Meta Platforms was one of the biggest drivers of the rally, jumping 11.4% following increased optimism surrounding its newly launched Muse AI assistant. Demand for the new AI product has helped restore confidence in the technology sector following the recent deterioration in AI sentiment.

Semiconductor stocks followed Meta higher.

AMD gained around 10% and crossed a $1 trillion market capitalisation for the first time. Intel surged 12.2%, Arm Holdings rose 17%, and the Philadelphia Semiconductor Index gained 4.3%.

The momentum continued into Asia on Tuesday. MSCI's index of Asia-Pacific shares outside Japan climbed to a two-week high, while technology-heavy markets, including South Korea and Taiwan, also advanced.

The combination of stronger AI sentiment and lower bond yields has therefore temporarily shifted investor attention away from concerns surrounding higher interest rates.

Falling Treasury Yields Give Stocks Additional Support

Another important factor behind the equity rally has been the retreat in US government bond yields.

The benchmark 10-year Treasury yield moved back below the psychologically important 5% level on Monday. Higher bond yields normally increase the discount rate applied to future corporate earnings, which can place particular pressure on growth and technology companies.

The reversal in yields therefore removed one of the major headwinds facing the technology sector.

However, the broader interest-rate picture remains restrictive.

The Federal Reserve raised interest rates last week for the first time in three years, and markets continue to price in the possibility of another increase. Reuters reported on Monday that traders were assigning roughly a 50% probability to another Fed hike next month.

This means the current equity rally is developing despite expectations that monetary policy could remain tight.

Yen Remains Under Pressure Despite BOJ Rate Hike

The Japanese Yen remains one of the weakest major currencies.

USD/JPY climbed towards 157.47 during Tuesday’s Asian session as markets continued to focus on the large interest-rate differential between Japan and the United States.

The Yen has struggled even after the Bank of Japan raised rates last Friday. Two policymakers dissented from the decision in favour of a more cautious approach, reducing expectations that the BoJ will accelerate its tightening cycle.

At the same time, the Federal Reserve and several other major central banks continue to maintain relatively hawkish positions.

The interest-rate differential between the United States and Japan remains around 275 basis points, according to analysis cited by Reuters, keeping Yen-funded carry trades attractive. Markets currently in price around a 30% probability of another BoJ increase to 1.50% in October.

There is, however, an important risk for Yen traders: intervention.

Reports that Japanese authorities recently conducted a rate check have increased speculation that officials are becoming uncomfortable with further Yen depreciation.

USD/JPY Technical Outlook

USD/JPY remains technically supported while trading around the 157 area.

The immediate focus is likely to remain on 158.00, with 160.00 representing a major psychological barrier should buying pressure continue.

On the downside, a move back below the 156.00 area would weaken the current upward momentum and could indicate that intervention concerns or profit-taking are beginning to limit Dollar gains.

The closer USD/JPY moves towards 160, the greater the likelihood that intervention speculation becomes an increasingly important market driver.

Oil Rebounds as Traders Watch US-Iran Developments

Oil prices reversed some of their recent decline on Tuesday.

November Brent crude climbed around 1.7% to $102.06 per barrel, while the more actively traded November WTI contract traded around $93.65.

The rebound comes after several sessions of heavy selling, driven partly by expectations that diplomatic discussions could reduce geopolitical risks surrounding Middle Eastern energy supplies.

Markets are closely watching developments at the United Nations General Assembly after US President Donald Trump said he would be open to meeting Iranian President Masoud Pezeshkian.

At the same time, supply conditions remain complicated.

Saudi Arabia has increased exports through the Strait of Hormuz, helping alleviate immediate concerns surrounding supply availability. Reuters reported that approximately 14 million barrels of Saudi crude were loaded onto seven supertankers inside the Gulf on Sunday.

Elsewhere, production at Libya’s Sharara oilfield has fallen by roughly 200,000 barrels per day following the closure of a pipeline valve, adding another potential supply risk.

For now, the rebound in oil appears more consistent with short-covering following the recent sharp decline than with confirmation of a new bullish trend.

Brent Crude Technical Outlook

The $100 level remains the key psychological area for Brent.

Remaining above $100 keeps the market relatively supported, while a sustained move above the current $102-$103 region could strengthen the short-term recovery.

A return below $100, however, would suggest that diplomatic expectations and improving supply flows are continuing to remove part of the geopolitical premium built into oil prices.

Headline risk remains exceptionally high, meaning developments surrounding Iran, Saudi Arabia, and the Strait of Hormuz could quickly change the technical picture.

Gold Struggles as Higher Rates Reduce Demand

Gold has not participated in the broader risk rally.

Spot Gold declined around 0.6% towards $4,319 per ounce on Tuesday as expectations for higher interest rates reduced demand for the non-yielding metal.

This creates an interesting environment for bullion.

Geopolitical risks remain elevated, which would traditionally provide support to Gold. However, the prospect of additional central bank tightening and a relatively firm US Dollar is creating pressure in the opposite direction.

As a result, Gold is currently being driven less by safe-haven demand and more by expectations surrounding interest rates, Treasury yields, and the Dollar.

Bitcoin Pulls Back After Eight-Month High

Cryptocurrencies have also benefited from improving risk appetite.

Bitcoin surged more than 6% on Monday and traded above $87,000, reaching its highest level in roughly eight months. The move helped lift crypto-linked equities, including Coinbase and Strategy.

Some profit-taking emerged on Tuesday, with Bitcoin falling around 2% from its recent high.

The ability of Bitcoin to remain close to its recent breakout levels will be important in determining whether the rally develops into a broader continuation move or turns into a short-term correction.

Market News Brief

The key themes driving markets on Tuesday are increasingly interconnected:

• AI stocks remain the strongest source of risk appetite, with Meta’s Muse launch reviving enthusiasm across semiconductor and technology shares.
• US Treasury yields have retreated, helping growth stocks recover despite expectations for potentially higher interest rates.
• The Japanese Yen remains under pressure, as investors question whether the BOJ can tighten policy quickly enough to significantly narrow the interest-rate gap with the US.
• Oil has bounced following four sessions of losses, but prices remain highly sensitive to developments surrounding possible US-Iran discussions and Middle Eastern supply.
• Gold remains under pressure as higher-for-longer interest-rate expectations offset some of the demand normally generated by geopolitical uncertainty.
• Bitcoin has pulled back from above $87,000 following Monday’s strong risk-on rally.

What Traders Should Watch Next

Attention is now likely to shift towards three major themes.

First, markets will watch whether the AI rally can maintain momentum after the NASDAQ’s record close. Technology valuations will become increasingly sensitive to any renewed move higher in Treasury yields.

Second, central-bank expectations remain crucial. With the Federal Reserve, BoJ, RBA, and RBNZ all facing persistent inflation pressures, changes in rate expectations could create significant volatility across the Dollar, Yen, Gold, and global bond markets.

Finally, geopolitics remains an important wildcard. Developments involving the United States and Iran could produce significant moves in oil, while markets are also looking towards the upcoming meeting between the United States and China, where trade, artificial intelligence, and other economic issues are expected to feature prominently.

For now, equity markets have regained momentum, led by technology and AI. But with interest rates, oil prices, and geopolitical developments all capable of changing sentiment quickly, volatility is unlikely to disappear.