Markets suspended between AI, Hormuz, and China: the beginning of the week tells of a world in unstable equilibrium.

The week starts with two opposing forces

The start of the week was dominated by a very clear tension in financial markets: on the one hand, optimism about artificial intelligence, on the other, geopolitical risk in the Middle East. Wall Street remained buoyant, with the S&P 500 and Nasdaq posting eight consecutive record closes , while in Europe, the STOXX 600 rose 0.9% to 627.06 points , led by the technology sector, which rose 2.6% . STMicroelectronics, in particular, gained 7.9% to 63.9 euros , its highest level since 2000, thanks to expectations regarding demand for data centers and AI.

At mid-session on Tuesday, the main benchmark ETFs confirmed a still constructive market: SPY, a proxy for the S&P 500, was at $759.42 , QQQ, linked to the Nasdaq 100, at $745.03 , and DIA, linked to the Dow Jones, at $512.63 . This isn't a euphoric rally, but it shows remarkable resilience given the context: oil prices remain high, long-term rates under scrutiny, and renewed tensions between the United States, Iran, Israel, and Hezbollah.

Middle East: Risk remains in oil prices

The heart of the risk remains the Strait of Hormuz. According to Reuters, the conflict that began in late February has left Hormuz largely closed to maritime traffic, potentially impacting approximately a fifth of global oil and LNG flows. Iran is considering a US proposal to halt the war, but communications with Washington were reportedly interrupted for several days, partly due to Israel's offensive in Lebanon against Hezbollah.

Over the weekend and into the early hours of the week, the exchange of attacks between the United States and Iran reignited fears of a new escalation. The United States struck radar and drone control sites in Iran after downing an American drone; Tehran later declared that it had targeted US soldiers in Kuwait with missiles, which Washington claims to have intercepted. Reports regarding the number of injuries are mixed: some sources speak of seven minor injuries , including soldiers and contractors, who returned to duty within 24 hours , while other reports had initially indicated around five injuries .

The most sensitive variable, however, is Lebanon. Netanyahu ordered attacks against the southern suburbs of Beirut controlled by Hezbollah, only to halt them after Trump's intervention; Israel, however, has continued to strike southern Lebanon. Reuters reports over 1.2 million displaced people and more than 3,400 deaths in Lebanon since the start of the new phase of the conflict. For Tehran, the Lebanese issue is now part of the overall negotiations with Washington: if Israel continues, Iran threatens to derail the talks and further harden its position on Hormuz.

Oil and gold: the market is buying protection, but not panicking.

Oil remains the most sensitive barometer. On Tuesday, Brent crude was around $95.15 a barrel and WTI crude was at $92.21 , after losing more than $2 in the early trading hours and then recovering. The message is clear: every diplomatic glimmer of hope cools prices, but every threat over Hormuz rekindles them. Reuters also reports a possible draw in U.S. inventories of 3.6 million barrels in the week ending May 29: if confirmed, it would be the sixth consecutive week of draws.

On the energy supply side, Iran has resumed gas production at three offshore platforms in the South Pars field, following a shutdown due to damage to onshore processing facilities. This is important news because it shows that Tehran is seeking to protect its production capacity, even while some infrastructure remains vulnerable or undergoing reconstruction.

Gold, meanwhile, continues to act as an insurance asset. Reuters reports a rise of about 1% to $4,527 an ounce , boosted by a weaker dollar and falling bond yields. It's not just fear: it's also a structural demand for protection in a world where geopolitical risk has become a permanent fixture in portfolios.

China: World's factory slows on the demand side

Outside the Middle East, the weekend's most important data came from China. The official manufacturing PMI fell to 50.0 from 50.3 , right on the threshold between expansion and contraction. Even more interesting is the detail: new foreign orders fell to 48.6 , signaling a contraction in international demand, while the commodity price index remained high at 60.5 . In other words, Chinese factories are not idling because of a lack of production capacity, but because weak demand and high costs are squeezing margins and confidence.

The private RatingDog/S&P Global data was better, with a PMI of 51.8 , but it also showed a slowdown compared to the previous month and a contraction in new foreign orders. This is a sign that shouldn't be underestimated: if oil prices remain high and global demand slows, China risks finding itself caught between lower industrial margins and reduced export momentum.

Rates and Currencies: Bonds See Relief, Yen Under Pressure

US Treasuries found some respite: the 10-year yield fell to 4.433% , while the 30-year yield fell to 4.953% . This movement is consistent with the temporary decline in oil prices and hopes for a US-Iran agreement, but it doesn't change the underlying picture: as long as energy prices remain high, central banks cannot relax their guard too much on inflation.

On the currency market, the dollar weakened slightly, while the yen remains near the psychological threshold of 160 against the dollar, a level that in the past has heightened concern over possible Japanese intervention. It's a technical detail, but it captures the current situation well: stock markets are eyeing AI, commodities are eyeing Hormuz, and currencies are eyeing real rates.

Conclusion

This start to the week doesn't tell of a calm market, but rather of a market that is choosing to live with risk. Stocks are rising because AI continues to offer a powerful growth story. Oil remains high because Hormuz hasn't returned to normal. Gold is holding firm because investors want protection. China is slowing because global demand is no longer as strong.

The real question for the coming sessions isn't whether markets are optimistic or pessimistic. It's more subtle: how much more geopolitical risk are they willing to absorb before demanding higher yields, wider risk premiums, and more defensive energy prices.