AI Stocks Rally as Dollar Steadies Ahead of Federal Reserve Decision

SINGAPORE, Oct 28 (Reuters) - Stocks across Asia experienced a significant uptick on Wednesday, fueled by renewed excitement surrounding artificial intelligence (AI) and anticipation of upcoming earnings reports from major tech companies in the United States. Concurrently, the dollar showed resilience ahead of a crucial policy announcement from the Federal Reserve.

The surge was partly driven by South Korean semiconductor manufacturer SK Hynix, which reported a staggering increase of over seven times in its quarterly operating profit, contributing to the overall positive sentiment in the market.

Investors are particularly focused on the earnings reports set to be released after the market closes, especially from tech giants Alphabet and Microsoft. These results are anticipated to provide insights into whether the substantial investments in AI will yield sustainable revenue growth. Chris Brigati, Chief Investment Officer at SWBC, commented, "While we're expecting strong results across the board, the emphasis is shifting. It’s not just about the earnings; it’s about whether the capital expenditures related to AI growth will translate into lasting revenue, which remains uncertain."

Brigati further noted, "The era where a rising market lifts all stocks seems to be changing. Future expectations are increasingly centered on execution risks and how much success is already priced into stocks."

In early trading, the MSCI index reflecting Asia-Pacific shares outside Japan rose by 0.85%. Japan’s Nikkei index climbed 1.2%, and South Korea’s KOSPI recorded a remarkable increase of more than 3%. SK Hynix shares initially surged by 3%, later adjusting to a 1.75% gain.

This week, a series of funding announcements related to AI from companies like Meta, SpaceX, and Broadcom have revitalized the AI sector. Additionally, the sentiment has been further enhanced by Anthropic's filing for an initial public offering.

As the U.S. earnings reports approach, futures for U.S. markets remained relatively stable, while EUROSTOXX 50 futures saw a slight decline of 0.03%.

Beyond corporate earnings, market participants are closely monitoring the Federal Reserve's policy decision expected later on Wednesday, with a steady outcome anticipated. However, the focus will be on the commentary regarding future interest rates, especially amid ongoing inflation concerns exacerbated by the conflict in the Middle East.

Analysts from JPMorgan noted in a recent client communication that they expect at least two hawkish dissents during the Fed meeting. They remarked, "Market participants will likely pay attention to how Chair Kevin Warsh presents the decision. A lack of explanation could be interpreted as dovish."

In the lead-up to the Fed's announcement, the dollar index maintained a position close to a two-week high, standing at 102.37 against six major currencies.

In the currency markets, the New Zealand dollar fell by over 1% following the Reserve Bank of New Zealand's unexpected decision to keep its policy interest rate steady. Conversely, the Australian dollar rose by 0.25% to $0.7043, bolstered by data indicating a sharp increase in consumer prices in the third quarter, primarily driven by rising fuel costs, even as core inflation remained high.

The Israeli shekel weakened after exit polls indicated a stalemate in the country’s wartime elections. In the oil market, Brent crude futures climbed by 0.47% to reach $114.42 per barrel, while U.S. crude increased by 0.55% to $100.45 per barrel. Efforts to broker peace between the U.S. and Iran remain complicated, with Iranian Security Council chief Mohsen Rezaei meeting with Supreme Leader Ayatollah Mojtaba Khamenei following discussions with representatives from Saudi Arabia, Turkey, and Pakistan.

Gold prices remained steady, trading at approximately $4,057.95 an ounce.

(Reporting by Rae Wee; Editing by Christopher Cushing)