The market awaits the Federal Reserve's decision and major companies' earnings reports; Nasdaq futures rise, Korean stocks close higher, and WTI crude oil edges up.

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The strong profit expectations for the technology sector and signals from the Federal Reserve are jointly shaping the core narrative of global markets this week. Meanwhile, the benchmark index for emerging market stocks has reached a record high, recovering all losses from the onset of the Iran war, led by Asian chip manufacturers. However, the highly concentrated risk driven by the AI boom is causing some investors to be wary.

On Wednesday, the Euro Stoxx 50 opened up 0.1%, Germany’s DAX rose 0.1%, Nasdaq 100 futures climbed 0.5%, and Alphabet, Microsoft, Amazon, and Meta will all release their quarterly earnings reports together. According to Bloomberg Industry Research, the technology sector’s first-quarter profit growth is expected to reach 41%, the highest among all S&P 500 sectors and about twice as much as the second-ranked materials sector. The Federal Reserve will announce its policy decision on the same day, and investors will look for clues about future interest rates.

In emerging markets, the MSCI Emerging Markets Index has surged over 15% so far in April, surpassing its previous February peaks to hit a historic high, outperforming the roughly 10% gain of the S&P 500 over the same period. Chip stocks TSMC, Samsung Electronics, and SK Hynix contributed about half of the index’s gains this month, and together now represent nearly a quarter of the index’s weight.

On the Iran front, Trump has instructed aides to prepare for a long-term blockade of Iran, with the Strait of Hormuz likely to remain closed. This development sent Brent crude up to $112 per barrel at one point before narrowing gains to 0.2%, closing at $111.47 per barrel. It has also pushed up inflation expectations, dampening market bets on Fed rate cuts.

Euro Stoxx 50 opened up 0.1%, Germany DAX up 0.1%, UK FTSE 100 flat, France CAC 40 down 0.15%.Korea’s Kospi closed up 0.8% at 6690.90.Nasdaq 100 futures rose 0.5%, S&P 500 futures up 0.2%.The US dollar spot index was largely unchanged. USD/JPY one-month volatility fell to its lowest since March 2022.US 10-year Treasury yields were little changed at 4.345%.WTI crude edged up 0.54% to $100.47 per barrel.Gold edged higher to about $4,600 per ounce.Bitcoin led the cryptocurrency market, trading at about $77,275.

Tech Earnings Are This Week’s Market Focus

Wednesday will be the most critical day of this earnings season. The concentrated release of earnings by Alphabet, Microsoft, Amazon, and Meta will not only reveal their individual performances but also determine whether the recent global stock market rebound can continue. The MSCI Asia Pacific stock benchmark index is up 0.1%, European markets are expected to open slightly higher, and investors are also watching the earnings of UBS and Deutsche Bank.

Bloomberg Industry Research shows that the technology sector’s first-quarter profit growth is expected to reach 41%, the highest level among all S&P 500 sectors. Tech companies have so far largely avoided the direct impact of the Iran war; declining consumer spending, economic uncertainty, and supply chain pressures have significantly affected sectors like energy, but the tech sector has been less impacted.

Hartmut Issel, Head of Asia Pacific Equity and Credit at UBS Wealth Management, said on Bloomberg TV: “Hyperscale cloud service providers will deliver very impressive numbers on cloud demand, which shows there’s no shortfall in demand—the most crucial point.”

The MSCI Asia Pacific Index rose 14% this month, on track for its best monthly performance since November 2022, also outperforming the S&P 500’s 9.3% gain in the same period. The ongoing strength of tech companies has helped global stocks erase the losses caused by the Middle East conflict in recent weeks, making this week’s earnings results vital for sustaining the rally.

Asian Chip Stocks Dominate Emerging Markets, Concentration Risk Raises Concerns

The MSCI Emerging Markets Index hit a historic high, with TSMC rising over 25% in April and its latest valuation reaching $1.8 trillion, overtaking Saudi Aramco as the top weighted stock in the index; Samsung Electronics rose 32% in the period, and SK Hynix surged over 60%. Taiwan’s stock market rose about 21% in April in US dollar terms and is set for its best monthly performance in decades; Korea’s Kospi gained 24%, marking the biggest single-month rise since the 1998 Asian financial crisis.

Timothy Fung, Head of Asia Equities Strategy at JP Morgan Private Bank, said Korea and Taiwan together account for about 44% of the MSCI Emerging Markets Index’s weight, primarily because these companies are core parts of the US hyperscale tech companies’ AI infrastructure supply chain. He also noted, this high concentration is increasing the correlation between emerging market assets and Wall Street. “These companies and sectors are cyclical—there are good times and bad times,” he said.

Some investors are wary of this. Song Zhe, Senior Investment Specialist at BNP Paribas Asset Management, said: “The AI story has gotten somewhat crazy. We still like this market, but investors should consider diversifying their portfolios amid the AI rally.”

Overall Gains Mask Deep Losses in Some Markets

The MSCI Emerging Markets Index’s historic high hides significant divergence between markets. Measured in US dollars, many oil-importing countries’ stock markets remain deeply in the red versus pre-war levels—Indonesia and the Philippines have fallen more than 16% since the end of February, South Africa’s main index is down 13%, Mumbai’s Sensex index is down 9%.

Varun Laijawalla, Portfolio Manager for Emerging Markets Equities at Ninety One, said a weaker dollar has been a crucial support for emerging market performance—the dollar surged sharply at the start of the conflict but has since given back most gains, boosting profits for emerging market exporters. He also said emerging market valuations remain attractive compared to US stocks, and earnings prospects are structurally improving.

Laijawalla added, the tech sub-index has risen about 50% this year, while energy, industrials, and utilities have posted double-digit returns. “Looking at breadth, 7 of the 11 sectors have positive returns, meaning this rally has gone beyond just the tech theme.”

Iran Blockade Stalemate Continues, Oil Prices Push Higher

According to the Wall Street Journal, Trump has opted to continue economic and oil export blockades against Iran in a series of recent meetings—including discussions in the White House Situation Room on Monday—to prevent ships from entering or exiting its ports. After considering restoring bombing or withdrawing from the conflict, officials say Trump believes maintaining the blockade carries the lowest risk. This means the Strait of Hormuz will remain closed.

Meanwhile, the UAE announced it will exit OPEC on May 1st, leaving the organization after more than sixty years—a major blow to OPEC and the latest sign that the Iran conflict is reshaping the global energy market.

Rodrigo Catril, strategist at National Australia Bank, said: “The Iran conflict is clearly deadlocked—there are no more bombings, but no resolution either, no nuclear deal, and no ships passing through the Strait of Hormuz. Oil prices could be supported on this basis, and complacency in risk assets including US stocks may be challenged.”

Rising oil prices have lifted inflation expectations, leading to US Treasury futures falling on Tuesday and a pullback in bets on a Fed rate cut. Cash Treasury trading was closed during the Asian session due to Japan’s holiday and will reopen in the London session. Elsewhere, gold edged higher to about $4,600 per ounce, and Bitcoin led the cryptocurrency market at about $77,275.

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