Oil jumps, stocks soar: Markets defy West Asia crisis amid AI boom, IEA warns of economy 'red zone'

Oil prices rose on Wednesday as Brent Crude is trading at $98.20 per barrel, as peace talks between the US and Iran stuttered. However, benchmark indexes across Japan, Taiwan, China, Sydney, Singapore and Manila continued to rally, driven by the tech sector and demand for artificial intelligence. Iran fired missiles at Kuwait and Bahrain, and the US fired on and disabled oil tankers heading towards Iran. Prices for August contracts have risen by more than 2 per cent since June 2 and by over 5 per cent since last week.

Speaking to CNBC-TV18, International Energy Agency (IEA) Executive Director Fatih Birol Global economy could enter a “red zone” if disruption through the Strait of Hormuz continues. The IEA has warned that the Strategic Oil Reserves are depleting rapidly. In March, all of 34 IEA countries released 400 million of their strategic oil reserves to stabilise the market price. However, the IEA Chief said that there was no immediate need for the release of the second strategic oil reserve.

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Stock markets continue to rally

Stock markets across the globe continued to rally, driven by AI optimism. In the US, all three major indexes closed at fresh records on Tuesday's closure. S&P 500 rose 0.13 per cent to end above 7,600 for the first time ever, while the Dow added 228.91 points, or 0.45 per cent. The Nasdaq Composite marked a gain of 0.03 per cent. Across the Asian market, Japan’s Nikkei 225 hit a record high, as investors appeared to look past the war in Iran. Nikkei 225 ended Wednesday’s trading session 2.50 per cent higher, while Topix added 1.83 per cent higher, China’s CSI 300 rose 0.49 per cent, and Hong Kong’s Hang Seng was down 1.62 per cent. While Australia's S&P/ASX 200 rose 0.70 per cent. But India showed a downward trend as the Nifty 50 fell 0.83 per cent, while the BSE Sensex was down by 0.90 per cent.

Most of the major indexes were driven by the AI optimism, but the economy underneath this rally does not appear evenly strong. Stocks are up, but households are under strain. US household purchasing power, when adjusted for inflation, has decreased; discretionary spending is declining, meanwhile, credit card delinquency pushes consumers towards a debt trap. Most equity markets are concentrated towards one particular sector, hinting at a looming correction.