Middle East tensions flared up again, pushing oil prices sharply higher and ending a three-day losing streak. Asia-Pacific stock markets broadly advanced, led by the semiconductor sector, though sentiment remained constrained by the U.S. Federal Reserve's upcoming interest rate decision and ongoing pressure from tech stock rotation.

On Wednesday, the U.S. Central Command announced it had intercepted a ballistic missile attack launched by Iran against American forces in the Middle East, according to CCTV News. Brent crude oil subsequently jumped more than 3%, halting its three consecutive days of decline.

Meanwhile, South Korea's KOSPI index expanded its gains to over 3%, with SK Hynix surging after reporting a 557% year-on-year profit increase for the quarter, marking one of the most standout performances in the Asia-Pacific region.

The Iranian attack refocused market attention on the Strait of Hormuz. The risk of energy supply disruptions has further complicated the inflation outlook, just as the U.S. Federal Reserve is set to announce its interest rate decision on Wednesday, adding to uncertainty. On the tech front, the Nasdaq 100 has fallen for five consecutive sessions, its longest losing streak since January this year. The Philadelphia Semiconductor Index dropped 4.5% on the day and is on track for its worst monthly performance since 2002.

Oil Prices Surge as Strait of Hormuz Risk Returns to the Forefront

Brent crude rose 3.4% to approximately $87 per barrel, while WTI crude futures gained about 4% to around $82 per barrel, ending a three-day decline. During the brief period of easing prior, Brent crude had recorded its biggest three-day drop since April 2020.

The direct trigger for the oil price rebound was a statement from the U.S. Central Command. According to CCTV News, on the 28th local time, the U.S. military's Central Command reported that at 5:45 p.m. Eastern Time, Iran's Islamic Revolutionary Guard Corps launched multiple ballistic missiles from Iranian territory, attempting a surprise attack on U.S. forces in the Middle East.

Ryan McKay, Senior Commodity Strategist at TD Securities, commented, "We remain cautious about any potential agreement that fails to specifically address the Strait of Hormuz issue. Disputes over the management of this waterway have previously led to aggressive actions by Iran, causing an earlier memorandum of understanding to fall through."

Bank of America had downgraded Exxon Mobil to a "neutral" rating before the latest escalation, citing potential downside risk for oil prices if a U.S.-Iran ceasefire is reached. They also noted that approximately 20% of Exxon's global production is exposed to disruption through the Strait of Hormuz, limiting upside potential.

Asia-Pacific Stock Markets Strengthen, South Korea Leads Gains

Asia-Pacific stock markets rebounded broadly in this environment. South Korea's KOSPI index widened its gain to over 3%, with SK Hynix being the largest contributor due to its explosive 557% profit surge. Samsung Electronics rose nearly 3%.

Japan's Nikkei 225 index advanced about 1%, while Australia's S&P/ASX 200 index gained approximately 0.8%. The broader MSCI Asia Pacific Index rose 0.7%.

Meanwhile, Nasdaq 100 futures initially fell 0.6% after the attack but later turned positive, while S&P 500 futures were up about 0.4%.

Tech Rotation Persists, Semiconductor Sector Under Pressure

The localized bright spots in the Asia-Pacific region could not mask the broader adjustment pressure on the technology sector. After tumbling 4.5% on Tuesday, the Philadelphia Semiconductor Index is on track for its worst monthly performance since 2002, following one of the strongest quarterly gains in its history. Micron Technology and Sandisk were among the biggest decliners in the S&P 500 on Tuesday.

Vikram Rai, a fund manager at First New York, pointed out that the divergence between the S&P 500 and the Nasdaq 100 "reflects a rotation of funds out of chip stocks." He added that the Nasdaq 100 "cannot rise on its own if semiconductor and memory stocks don't move."

Joseph Brusuelas, Chief Economist at RSM, characterized the current market mood as "a mild risk-off sentiment spreading across financial markets ahead of the Fed's policy decision and a heavy batch of earnings reports." He noted that investors would likely be "more willing to deploy capital" if there weren't growing concerns about AI competition and the financial outlook for the tech ecosystem.

Fed Decision Imminent, Rate Hike Probability Debated

The market currently prices about a 70% probability that the U.S. Federal Reserve will hold interest rates steady at its Wednesday meeting, keeping the target range at 3.5% to 3.75%.

Analysts at JPMorgan Chase believe the probability of a rate hike is "likely lower than the roughly 30% currently priced by the market." Their reasoning is that "while inflation is elevated, there is no risk of a further breakout." The bank assigns a 50% probability to a "hawkish hold," suggesting the Fed will maintain vigilance while also noting the disinflationary signals from recent energy price trends.

Julia Hermann, Global Market Strategist at New York Life Investment Management, warned, "We believe the market is placing too much weight on inflation risks and not enough on the economic cost of further tightening." She cautioned that if the Fed signals a more hawkish stance, "the biggest impact will be on the already fragile market-leading sectors, rather than the broader market."

Corporate Earnings Season Intensifies

This week marks a critical window in the earnings season. Microsoft and Meta are scheduled to report results after the market close on Wednesday, with Apple and Amazon following on Thursday.

However, some positive signals have also emerged. Ford Motor beat Wall Street expectations for its quarterly results and raised its full-year outlook for the second time, benefiting from strong sales of high-margin SUVs and higher selling prices. Its shares rose about 4% in after-hours trading.

Additionally, according to a Bloomberg report, Nvidia CEO Jensen Huang publicly defended open-weight AI systems, stating they are crucial for advancing the AI industry. Meanwhile, Meta and BlackRock are planning to jointly build a data center complex in Texas with an estimated cost of $14 billion and a capacity of 1 gigawatt.

This story is being updated.