London (AFP) – Stocks dropped and bond yields hit fresh multi-decade highs Wednesday as elevated oil prices increase the prospect of central banks hiking interest rates. Governments worldwide are seeing their debt repayments jump as yields on their bonds reach, in some cases, the highest levels since the end of the last century.
“The resumption of the military spat between the US and Iran has done little to calm markets, with the (benchmark Brent) oil price pushing higher again to over $95 per barrel,” noted Richard Hunter, head of markets at Interactive Investor. “This exacerbates inflationary concerns once more, at a time when governments are being increasingly punished by high levels of indebtedness by paying more to service the debt, let alone raising fresh capital for funding purposes.”
Bond yields and oil prices have won support since a weekend US strike on an Iranian island in the Strait of Hormuz, sparking a series of tit-for-tat attacks in which Tehran has targeted American interests in Mideast countries. With the strait — through which about a fifth of world oil and liquefied natural gas normally pass — effectively closed for the foreseeable future and energy costs unlikely to come down, fears are growing that high inflation will settle in. European gas prices on Wednesday reached the highest level since the start of 2023.
The yield on 30-year UK government bonds is meanwhile at the highest level since 1998, while for 10-year debt, it was last higher during the global financial crisis of 2007-08. Japan’s 10-year bond yield is at a 30-year high, 30-year US Treasuries are just short of their 2007 mark, and the US 10-year yield is also at financial-crisis levels. “The renewed US-Iran attacks and their impact on oil prices have made investors more concerned,” said Rajeev De Mello at Gama Asset Management.
Stock markets across Asia showed the biggest falls Wednesday, with their key technology firms — which rely on low borrowing rates to fuel their investments — sending Tokyo down 2.9 percent at the close and Seoul four percent lower. “At these levels, higher yields are clearly a headwind to Asian equities,” added De Mello. The selling, along with losses in Europe, followed declines Tuesday on Wall Street.
Investors are gearing up for the release of key data on US jobs and inflation over the next week that could determine whether the Federal Reserve hikes rates at its next policy meeting due this month.
– Key figures at around 1030 GMT –
London – FTSE 100: DOWN 0.6 percent at 10,721.83 points
Paris – CAC 40: DOWN 0.7 percent at 8,244.10
Frankfurt – DAX: DOWN 0.8 percent at 25,751.49
Tokyo – Nikkei 225: DOWN 2.9 percent at 64,325.64 (close)
Hong Kong – Hang Seng Index: DOWN 0.1 percent at 25,311.21 (close)
Shanghai – Composite: DOWN 1.0 percent at 3,941.39 (close)
New York – Dow: DOWN 0.8 percent at 52,766.88 (close)
Brent North Sea Crude: UP 0.4 percent at $95.03 per barrel
West Texas Intermediate: UP 0.1 percent at $90.33 per barrel
Euro/dollar: DOWN at $1.1569 from $1.1589 on Tuesday
Pound/dollar: DOWN at $1.3483 from $1.3511
Dollar/yen: DOWN at 159.89 yen from 160.24 yen
Euro/pound: UP at 85.81 pence from 85.77 pence
© 2024 AFP
