Asia open: AI exuberance rotates into small caps amid sticky inflation and looming central bank tightening

• Global equities pushed to fresh record highs as investor enthusiasm broadened beyond mega-cap technology stocks into small-cap industrial, energy, and infrastructure companies benefiting from the ongoing AI investment boom.
• Strong labour market data and rising inflation pressures in both the U.S. and Eurozone reinforced expectations of a more hawkish global monetary policy environment, with markets increasingly pricing additional tightening from the ECB and Federal Reserve.
• Capital intensity within the AI supercycle is becoming a key market theme, highlighted by Alphabet’s US$80 billion equity raise to finance expanding AI infrastructure spending, raising questions about long-term capital efficiency and balance-sheet sustainability.
• Chart of the day: Nasdaq 100 minor bullish trend remains intact above 30,245 key short-term support.

• World Stocks hit historic peaks amid calm geopolitics: Major global equity indexes, including the S&P 500, MSCI All Country, MSCI Emerging Markets, and MSCI Asia ex-Japan, advanced to brand-new record highs on Tuesday. The broad rally was underpinned by a general calm across fixed-income and currency desks, alongside a lack of major shifts in U.S.-Iran border tensions.
• Alphabet stuns markets with unprecedented $80 billion equity capital raise: Google’s parent entity, Alphabet, shocked Wall Street by announcing an $80 billion equity financing program to back its staggering AI capital expenditures, which are projected to reach $200 billion this year. Legendary holding firm Berkshire Hathaway has already committed a major $10 billion block to the capital raise.
• U.S. JOLTS job openings surge to two-year peak: Economic indicators released on Tuesday revealed that U.S. job openings for April jumped to their highest absolute level in two years, led by a massive concentration in professional and business services. This rapid pace represents the quickest sequential expansion in five years, signalling robust labour demand.
• Eurozone inflation scales 3% handle in May, securing ECB June hike: Driven by structural forces, Eurozone headline consumer price inflation crossed the 3% y/y barrier for the first time since September 2023. Core inflation also rose higher to 2.5% y/y from 2.2% in April. These hot prints have effectively locked in a 25-basis-point interest rate hike at next week’s ECB policy meeting, with traders pricing an additional 50 bps of tightening by year-end.

• The small-cap rotational AI capital drift: While multi-trillion dollar megacap behemoths capture mainstream headlines, an underlying structural rotation is developing. Tech and energy small caps are outperforming as critical components of the physical "picks and shovels” layer of the global AI buildout, allowing them to monetise large capex budgets away from over-concentrated tech heavyweights.
• Megacap liquidity demands & balance sheet fatigue: Alphabet’s massive $80 billion capital raise highlights growing cash demands among AI players. Despite boasting $126 billion in cash at the end of Q1, Alphabet’s massive capex burn rate, paired with $85 billion in fresh debt issuance over the past year, is prompting concerns over long-term capital efficiency.
• Sovereign monetary policy conundrums: Central banks globally are entering a synchronised tightening regime to squash persistent price pressures. With Eurozone inflation hot, the ECB is set to follow the G10 rate-hiking cohorts of Australia and Norway. Markets are subsequently pricing in a faster policy-tightening timeline from the Fed under the new leadership of Kevin Warsh.

Equities: The S&P 500 closed higher at fresh peaks with seven out of 11 sectors advancing, led by Utilities (+1.9%), Materials (+1.2%), and Industrials (+1%). Small-caps and non-tech cyclicals dramatically outperformed, while European bourses rallied 0.8% and the UK FTSE added 0.3%.

Fixed Income: Global sovereign bonds enjoyed a rare relief bid. The long end of the U.S. Treasury curve rallied, dropping yields by 3 basis points. Japan’s 10-year JGB yield plunged a massive 11 basis points following a highly successful auction, registering its steepest single-day drop since April 2023.

FX: The U.S. Dollar Index continued to trade within a minor range between 99.50 and 98.90, while the USD/JPY inched higher towards the critical 160.00 intervention threshold, keeping Japanese authorities on high alert. Conversely, digital safe havens buckled, with Bitcoin sliding 6% to break toward $66,000, printing an intraday low of $65,370 in today’s Asia opening session.

Commodities: Energy markets firmed modestly, with crude oil contracts adding 1% amid uncertainty over an interim US-Iran peace deal. Precious metals stabilised, with spot gold holding steady near $4,484/oz as investors balanced sticky global yields with Middle East headlines, but remained capped below its 20-day moving average at $4,580.

• Stock indices surge to records: Mirroring global risk-on transitions, regional bourses posted strong sessions. The MSCI Asia ex-Japan index climbed to an all-time record, building on Monday’s massive 4.0% single-session explosion in South Korea. In today’s Asia opening session, rotation has been seen among Hong Kong shares and China’s “A” shares. The Hang Seng Index slid -1.7% intraday, while China A 50 and the broader CSI 300 index rose around 1.5% each. The outperformance of China “A” shares has been driven by an expansion in service activities, as the RatingDog Services PMI rose to 54.4 in May from 52.6 in the prior month.
• Japanese bond volatility: The 11 bps collapse in the 10-year JGB yield has significantly adjusted near-term domestic yields. However, markets remain tightly focused on the Bank of Japan's upcoming policy meeting next week, where the central bank is widely expected to signal a clear path for interest rate normalisation and tapering.
• Chinese energy inventories: Highlighting real-world supply shifts, data show that China is aggressively drawing down its domestic onshore crude stockpiles to replace regular oil imports, which have plunged to a 10-year absolute low due to high international costs.

1. BoJ Governor Ueda Speech - 4.30 pm SGT Impact: USD/JPY, JPY crosses, short-term JGBs, Nikkei 225
2. US ADP Employment Change (May) - 8:15 pm SGT (consensus: +117K, Apr: +109K) Impact: USD, short-term US Treasuries, US stock indices, Gold
3. US ISM Services PMI (May) - 10:00 pm SGT (consensus: 53.8, Apr: 53.6) Impact: USD, short-term US Treasuries, US stock indices, Gold

The price action of the US Nasdaq 100 CFD (a proxy for the Nasdaq 100 E-mini futures) has continued to oscillate within a minor ascending channel in place since the 19 May 2026 low at 28,588.

In addition, the hourly RSI momentum indicator remains in a healthy bullish momentum condition (above the 60 level).

These observations suggest its minor uptrend phase remains intact. Watch the 30,245 key short-term pivotal support for a further potential push up. A clearance above 30,795 points to the next intermediate resistance at 31,050 (Fibonacci extension).

However, failure to hold and an hourly close below 30,245 would negate the bullish tone, signalling a minor corrective decline towards the next intermediate supports at 30,000 and even 29,700 (close to the 20-day moving average).