Q3 Kickoff: Oil Price Shock Fades, AI Boom Reshapes Asian Market Landscape

Global Markets Enter Q3: Old Risks Fade, New Divergences Emerge

On the first trading day of Q3 2026, global investors began repositioning after a first half filled with surprises and resilience. Contrary to market fears, the largest oil supply shock in history has left almost no scars on financial markets—oil prices have already fallen back to levels before the US-Israel-Iran conflict erupted at the end of February. Slowing demand in China, alternative shipping routes, and rapid supply gap-filling by producers effectively absorbed the crude oil shortfall. Even minor skirmishes under the ceasefire agreement failed to stir up waves.

Bond Markets: Growth Narrative Overpowers Inflation Worries

Notably, bond markets also appear to be "looking ahead." Although the market still expects the Fed to raise rates modestly, the rationale is not out-of-control inflation but rather strong US economic growth. The US Supreme Court's refusal to allow the president to fire Fed Governor Lisa Cook did not trigger significant volatility in bond markets. This indicates that the core logic of current interest rate pricing has shifted from "fighting inflation" to "preventing overheating." In Europe, upcoming inflation data from Germany, France, and Italy is expected to show a decline in annual increases, further solidifying expectations that the ECB will hold steady. Comments from ECB Executive Board member Isabel Schnabel at the Sintra Forum may reinforce this policy stance.

Asian Stock Markets Amid the AI Frenzy: Structural Divergence Intensifies

The stock market frenzy driven by artificial intelligence (AI) showed no signs of abating in the first half. South Korea's KOSPI index accumulated a gain of 100%, while the Nikkei 225 recorded a record quarterly increase of about 36%. However, fund flows display a counterintuitive pattern: foreign investors took heavy profits in the Korean market and withdrew, dragging down the won, while retail investors took over to chase gains. This "foreign exit, domestic entry" model suggests that short-term volatility risks are building up. Meanwhile, the European STOXX index rose about 9% in the quarter, and China's A-share blue-chip index gained 10%, indicating that funds are spreading from overheated themes to broader value opportunities.

Forex Dilemma: Yen and Won Under Pressure

The foreign exchange market has become a concentrated reflection of policy divergence. The yen fell below 162 against the US dollar, hitting its lowest level since 1986, and is just a hair's breadth away from the key 165 level. The market believes that the Bank of Japan is clearly lagging behind in the global rate hiking cycle, with interest rate differentials continuing to push the yen lower. Traders warn that intervention risk is increasing as the exchange rate approaches 165. The won is also under pressure, with foreign capital outflows and the fading of "country arbitrage" from the AI rally placing South Korean authorities in a dilemma: they must maintain export competitiveness while also preventing the financial fragility caused by capital flight.

Long-term Perspective: The Economic Cycle Is ShiftingThe opening of the third quarter is not an isolated event but a microcosm of the global economic cycle shift. The calm conclusion of the oil shock, the deep reshaping of Asian markets by AI, the historic depreciation of the yen, and the rapid return of inflation in Europe all point to a core trend: the market is shifting from "inflation panic" to "growth divergence." Within developed economies, the U.S. attracts capital with strong growth, while Europe gains policy space with moderate inflation; Asia, meanwhile, is experiencing a tug-of-war between AI dividends and currency pressures. Global capital flows are no longer single-mindedly chasing returns but are becoming more fragmented and arbitrage-driven.

Outlook: Policy Divergence and Risk Repricing

In the coming months, investors need to closely watch three sets of contradictions: first, whether the policy divergence between the Federal Reserve and the Bank of Japan will trigger a currency crisis in Asia; second, whether the AI rally can spread from semiconductor stocks to broader economic sectors, thereby supporting sustainable earnings expectations; and third, whether the continued decline in European inflation data will allow the European Central Bank to shift to easing earlier. Current market pricing implies a fairly high expectation of a "soft landing," but geopolitical tail risks and liquidity fragmentation could become variables that break the balance.

This time, the market is no longer dominated by a single narrative but is entering a "micro-cycle" phase of multi-polar rotation. For macro researchers, understanding structural differences between regions is more critical than predicting aggregate turning points.