Markets Move As Oil and Yields Rise
If you felt markets tense up, you were not imagining things. Asian equities slipped after a red U.S. session, leaving the MSCI Asia Pacific Index down 0.4%, while major gauges in Japan, South Korea and Australia also lost ground. Bloomberg's dollar barometer barely budged.
Oil stayed north of $101 a barrel, with Brent peaking at $101.94 on Thursday before backing off. Prices found support after Iran said it was ready for a fiercer war following fresh clashes around the region, keeping energy supply risks top of mind.
U.S. Trading And The Bond Market Reaction
Stateside, the S&P 500 fell 0.5%, with industrials and consumer discretionary names pacing the decline. The Nasdaq 100 slipped 0.3% as Nvidia, Amazon and Alphabet weighed on the index.
Bonds sold off too. The 10 year Treasury yield reached 4.85% during U.S. hours, a threshold last visited in late 2023. A plan from Washington to purchase up to $6 billion of longer dated Treasuries underwhelmed some who were looking for a bigger step up, adding fuel to the move.
Inflation Data And Rate Expectations
With crude climbing and yields higher, Friday's U.S. inflation print looms larger than usual. The Bureau of Labor Statistics posts August producer prices on Thursday and consumer prices on Friday. A hotter CPI could harden expectations for more tightening and pressure both stocks and bonds, while a softer read could do the opposite.
Rate markets put the odds of a quarter point hike on Sept. 16 at about 62%, up from 60% on Tuesday, and they fully reflect at least two more increases by mid next year.
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The Risk Premium And Currency Moves
"The temperature just got turned up again," said Kenny Polcari at SlateStone Wealth. "The risk premium is alive and well, and the risk to energy supplies coming out of the Gulf is real." Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International Plc, added, "The longer elevated prices persist, the harder it becomes for markets to shrug off the inflation impulse."
Geopolitics did not help the outlook. Iran indicated it was ready for an escalation. U.S. President Donald Trump predicted the war would not conclude until after the November midterm elections, adding that meaningful relief at the gasoline pump would also be unlikely before that time. That suggests limited scope for a quick de-escalation as the conflict enters its seventh month.
In currencies, the yen ended a three day upswing, dipping 0.1% to 153.65 per dollar. It had gained Wednesday after what traders read as jawboning from U.S. Treasury Secretary Scott Bessent, and investors were likewise awaiting comments later Thursday from Kazuyuki Masu, a member of the Bank of Japan's board. The broader dollar index tracked by Bloomberg was little changed.
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