Global stocks have traded at record highs as the AI boom continues to drive demand, offsetting news of fresh attacks in the Gulf that challenged optimism about a reopening of the Strait of Hormuz and lifted oil prices.
While negotiators from Washington and Tehran are apparently working to hammer out a deal, US President Donald Trump had been silent on their progress until posting that everyone should "just sit back and relax".
Speaking on Saturday, Defense Secretary Pete Hegseth said the US was ready to restart attacks on Iran if a deal could not be reached.
On Monday, news emerged that US forces struck Iranian targets over the weekend and Tehran had hit back, while Kuwaiti defences were reportedly intercepting missile and drone strikes.
Brent crude futures rose nearly 3 per cent to $94 a barrel, which in turn prompted a selloff in government bonds, which have been hurt by growing expectations for interest rates to rise to combat any spikes in inflation.
The MSCI All-World index was up 0.13 per cent to trade around record highs, as markets from Tokyo to Seoul traded at or near all-time peaks, underpinned by avid demand for anything AI-related.
"Even though there have been attacks from both sides, the market is holding on to the fact that negotiations are ongoing, and an elusive Iran/US deal to end the war in the Middle East and to reopen the Strait of Hormuz will still be found," XTB research director Kathleen Brooks said.
"As the focus switches to a raft of macro releases later this week, investors will need to watch how this plays out, and any delay in reaching a deal could knock market sentiment," she said.
The power of the AI rush was underlined by data showing South Korea's exports grew at the strongest annual rate in more than four decades in May to hit a record $87.75 billion.
Nvidia boss Jensen Huang kicks off the Computex trade show in Taiwan on Monday with a speech about AI in which he is expected to expound on his company's latest product efforts as well as the island's central role in the industry.
European stocks were down marginally on the day, as gains in energy shares were offset by losses in airlines and defence shares.
S&P 500 futures were up 0.3 per cent, while Nasdaq futures firmed 0.5 per cent after the benchmark indexes hit records last week.
The inflationary pulse from oil continued to hamper bond markets as US 10-year yields rose 1 basis point to 4.46 per cent, while yields on 10-year German debt rose 4.2 bps on the day to 2.98 per cent.
A host of Fed members are set to speak this week, while major US data include the ISM survey of manufacturing and the May payrolls report on Friday.
Market forecasts are for a solid rise of 85,000 in employment, keeping the jobless rate steady at 4.3 per cent. Anything stronger would likely see the odds of a hike narrow further.
"The lineup of Federal Reserve speakers throughout the week should continue to reinforce a balanced two-way policy approach, with officials remaining open to both rate hikes and rate cuts depending on incoming data," Pepperstone chief market strategist Chris Weston said.
"Consequently, expectations may build that the Fed gradually moves away from its easing bias and towards a more neutral policy stance in the months ahead."
Markets imply a 50-50 chance the Federal Reserve will have to hike rates by year-end, which has helped the dollar remain firm against a range of currencies, most notably, the Japanese yen.
The dollar was up another 0.12 per cent against the yen at 159.46 , just below the 160 barrier that many believe could trigger another round of official intervention to boost the Japanese currency.
