Hong Kong (AFP) – Asian stocks tumbled Friday as oil prices extended gains and bond yields held at multi-year highs, spurred by the Middle East crisis that stoked supply concerns. A forecast-topping US inflation report ramped up rate hike bets. Crude prices have soared more than 30 percent over the past week as the US and Iran exchanged strikes around the Strait of Hormuz, while Tehran has indicated its preparedness for a more intense conflict.
At the same time, Yemen’s Houthis have targeted several Saudi Arabian energy assets in a drive toward another key waterway that could cut off a crucial alternative route for global energy. The rebels seized control of the strategic Red Sea port city of Mocha on Thursday. Brent oil prices almost touched $110 per barrel Friday — the highest level since May — while the US benchmark West Texas Intermediate soared to over $104, marking the peak last seen around the same time.
With the war showing no sign of resolution, investors brace for another inflation surge that could pressure central banks to tighten monetary policy further. Consequently, government bond yields have jumped again this week to levels not seen since the global financial crisis, with the 30-year Treasury yield reaching 5.36 percent, a new post-2007 peak. The 10-year yields are nearly at five percent, approaching a 19-year high.
Adding to the pressure on bonds was a disappointing $6 billion government buyback that traders had expected to be larger. The European Central Bank lifted rates on Thursday and warned of an extended period of rising prices, while attention now turns to the Federal Reserve’s policy meeting next week. This follows the release later Friday of the US consumer price index, with a strong figure likely to compel policymakers to raise rates.
Investors are anticipating a more than 70 percent chance that officials will choose to implement a quarter-point increase, according to CME Group’s FedWatch tool. This report follows figures indicating that the producer price index accelerated to 5.4 percent in August, driven by energy prices, up from 4.8 percent in July and exceeding expectations.
Fiona Cincotta at FOREX.com remarked, “The data suggests that cost pressures in the economy are rising and could feed through into higher consumer price inflation, strengthening expectations that the Federal Reserve may need to keep interest rates higher for longer or raise them further.”
With oil prices continuing to rise, growing rate expectations, and the ongoing conflict, risk assets are taking a hit. After all three indexes on Wall Street closed deep in the red, Europe followed suit, and Asia mirrored this trend.
Tokyo and Seoul, filled with tech firms reliant on cheap debt for investments, tumbled more than two percent, while intense selling was observed in Hong Kong, Shanghai, Sydney, Singapore, Taipei, Wellington, and Manila. The increase in US rate expectations caused the dollar to rise against the yen, having fallen over the past week due to bets on a series of hikes by the Bank of Japan.
Quintex Intel’s Stephen Innes stated, “Attacks on shipping are now feeding directly into oil, natural gas, and diesel prices.” He added, “Iran has shown no inclination to back away, and the longer the confrontation continues, the harder it becomes for markets to treat the energy shock as temporary.”
“In markets, temporary inflation, supply shocks, and geopolitical premiums are often tolerated, but they struggle when the temporary begins to overstay its welcome, and oil appears to be doing exactly that.”
**Key figures at around 0230 GMT:**
– West Texas Intermediate: UP 0.1 percent at $102.58 per barrel
– Brent North Sea Crude: UP 0.1 percent at $107.76 per barrel
– Tokyo – Nikkei 225: DOWN 2.8 percent at 63,469.39 (break)
– Hong Kong – Hang Seng Index: DOWN 1.2 percent at 24,666.56
– Shanghai – Composite: DOWN 1.7 percent at 3,868.25
– Dollar/yen: UP at 154.46 yen from 154.34 yen
– Euro/dollar: DOWN at $1.1611 from $1.1609 on Thursday
– Pound/dollar: DOWN at $1.3507 from $1.3510
– Euro/pound: UP at 85.95 pence from 85.94 pence
– New York – Dow: DOWN 0.6 percent at 52,064.10 (close)
– London – FTSE 100: DOWN 0.6 percent at 10,608.92 (close)
© 2024 AFP
