Asian markets started the week on an interesting note. Technology and semiconductor stocks surged, even as investors faced a tougher macro backdrop with rising oil prices, higher bond yields and growing expectations that central banks could keep tightening monetary policy.
The big question for markets now is simple: Will US inflation give the Federal Reserve enough reason to raise rates on September 16?
Friday’s US jobs report has already shifted expectations. Now, investors are looking toward the August US Consumer Price Index (CPI) data due on Friday for the next major signal.
Tech stocks take the lead
The strongest move came from Asia’s technology sector, particularly semiconductor stocks.
South Korea and Japan were the standout performers.
- Samsung gained around 4%.
- SK hynix jumped about 6%.
- Kioxia, Tokyo Electron and Advantest climbed between 5% and 7.5%.
- South Korea’s market rose more than 3% at one point.
- Japan’s Nikkei 225 gained more than 2%.
- Taiwan also moved higher, helped by a jump in TSMC.
The rally comes after a difficult period for AI-linked stocks in July. Investors appear to be returning to the sector, betting that the huge amount of capital being invested in artificial intelligence will eventually translate into stronger returns.
That optimism has also been supported by developments around new AI models, with OpenAI preparing to roll out its latest model to selected customers.
But investors are not ignoring valuations.
After the sharp gains seen across AI and semiconductor stocks over the past few years, the debate is increasingly about whether earnings and growth can justify the prices investors are paying.
Inflation is now the market’s biggest test
The enthusiasm in technology stocks is running into a very different story in the bond market.
The US jobs report released Friday was stronger than expected. That has increased expectations that the Federal Reserve could raise interest rates at its September 16 meeting.
Markets are now heavily focused on Friday’s US August CPI report.
The consensus forecast cited by Reuters calls for core CPI to rise 0.2% month-on-month, with a possible upside risk of 0.3%.
That small difference could matter.
A hotter-than-expected inflation number could reinforce expectations of a Fed hike and push bond yields and the US dollar higher.
A softer reading could give policymakers more room to hold rates steady.
As Brown Brothers Harriman’s Elias Haddad put it, the September decision now hinges heavily on the CPI report.
Oil is adding another layer of pressure
There is another problem for central banks: energy prices are rising again.
Fresh clashes involving the US and Iran have pushed crude prices higher.
Reuters reported Brent crude at around $97 a barrel, after it had already climbed almost 8% the previous week. US crude was above $92 a barrel.
That matters because higher oil prices can feed into transportation, shipping, farming and manufacturing costs.
Diesel prices have already reached record levels, adding to concerns that the energy shock could make inflation harder to bring down.
For investors, this creates an uncomfortable combination:
Stronger economic growth + higher energy prices + rising inflation expectations = more pressure on central banks.
Bond yields are becoming a problem for equities
US Treasury yields are another key piece of the puzzle.
The 10-year Treasury yield was around 4.78%, close to its highest level since late 2023.
If inflation comes in hotter than expected, yields could move closer to the psychologically important 5% level.
That would be significant for equity markets, particularly high-growth technology stocks.
Why?
Because higher bond yields make relatively safe fixed-income investments more attractive while also increasing the discount rate investors use when valuing future corporate earnings.
This is one reason why the current rally in tech stocks deserves attention.
Investors are buying technology shares while the macro environment is becoming less friendly for expensive growth stocks.
The Fed is not the only central bank to watch
The Federal Reserve isn’t operating in isolation.
The European Central Bank is also expected to raise rates, with markets looking for another move later in the year.
Meanwhile, expectations for the Bank of Japan have also strengthened.
Markets were pricing in a 75% chance of a quarter-point BoJ hike at its September 18 meeting, according to Reuters, with further tightening also being considered before the end of the year.
The yen has already strengthened significantly against the dollar, reflecting expectations of a more aggressive Bank of Japan.
The dollar was trading around 156 yen, after losing roughly 2.4% against the yen the previous week.
So investors are entering a period where multiple major central banks could be moving rates higher at the same time.
China offers a different story
Chinese markets were more subdued.
Chinese blue-chip stocks were only modestly higher, while Shanghai was broadly flat.
One factor providing some support was news that China’s finance ministry would lead a combined $54 billion capital injection into state-owned insurers and banks.
At the same time, investors are watching Chinese technology stocks closely for signs of whether the sector can sustain its recent momentum.
This makes China another important part of the broader Asian market story, even though its performance on Monday was much less dramatic than South Korea, Japan and Taiwan.
Oracle earnings could provide the next AI signal
Beyond economic data, investors have another major event on their calendar.
Oracle reports earnings on Thursday.
The results will be closely watched because Oracle has become an important beneficiary of the huge spending wave around artificial intelligence and cloud infrastructure.
For investors, the earnings report could provide another indication of whether the AI investment cycle is translating into real business growth.
That matters after the recent debate over whether valuations in AI-linked companies have moved too far ahead of fundamentals.
The market wants proof that the AI boom is more than just a story.
Why this week could get volatile
On the surface, Asian markets look strong.
But underneath, several major forces are pulling in different directions.
Bullish factors:
- Strong US jobs data is supporting expectations for global economic growth.
- Semiconductor and technology stocks are seeing renewed buying.
- AI investment remains a major growth theme.
- China is providing policy support to parts of its financial system.
Bearish pressures:
- Higher oil prices are increasing inflation risks.
- US Treasury yields are elevated.
- Expectations for Fed tightening have increased.
- The ECB and BoJ are also moving toward tighter policy.
- High valuations remain a concern for technology stocks.
- Geopolitical tensions are adding another layer of uncertainty.
That is why the market could remain calm one day and become much more volatile the next.
The bigger picture
The interesting part of Monday’s rally is that investors aren’t necessarily ignoring the risks.
They are balancing them against the possibility of continued economic growth and strong corporate earnings, particularly in technology.
The key test comes later this week.
US CPI on Friday could determine whether the current optimism continues or whether markets have to rethink the rate outlook.
If inflation remains manageable, investors could argue that economic growth and corporate earnings can continue to support equities.
If inflation comes in hot, the story changes quickly.
Higher rates, higher yields and higher oil prices would create a much tougher environment for markets, particularly for stocks whose valuations depend heavily on future growth.
For now, Asian technology stocks are choosing optimism.
By the end of the week, inflation may decide whether that optimism was justified.