Hong Kong (AFP) – Asian stocks tumbled Friday as oil prices extended gains and bond yields held at multi-year highs, driven by concerns over supply due to the Middle East crisis and a forecast-topping US inflation report that 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 it is prepared for a more intense conflict. Concurrently, Yemen’s Houthis have targeted several Saudi Arabian energy assets in a push toward a key waterway, potentially cutting off an essential alternative route for global energy. The rebels seized control of the strategic Red Sea port city of Mocha on Thursday.
Brent oil nearly touched $110 per barrel on Friday—its highest level since May—while the US benchmark West Texas Intermediate reached over $104, a peak last seen around the same time. With the war showing no signs of abating, investors are bracing for another surge in inflation that will increase pressure on central banks to tighten monetary policy further. As a result, government bond yields have jumped again this week to levels not seen since the global financial crisis. The 30-year Treasury yield reached 5.36 percent, marking a new post-2007 peak, while the 10-year yields are approaching five percent and nearing a 19-year high.
Adding to the pressure on bonds was a $6 billion government buyback that disappointed traders who had anticipated a larger figure. The European Central Bank raised rates on Thursday and warned of an extended period of rising prices, with all eyes now on the Federal Reserve’s policy meeting next week. This comes after the release later Friday of the US consumer price index, with a strong figure likely to compel policymakers to raise rates. Investors are seeing a more than 70 percent chance that officials will opt for a quarter-point increase, according to CME Group’s FedWatch tool. This report follows data showing that the producer price index accelerated to 5.4 in August, driven by rising energy prices, up from 4.8 percent in July and exceeding expectations.
“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,” said Fiona Cincotta at FOREX.com. With oil prices continuing to climb, increasing rate expectations, and the conflict persisting, risk assets are taking a hit. After all three indexes on Wall Street ended deep in the red, along with those in Europe, Asian markets followed suit.
Tokyo and Seoul, home to tech firms reliant on cheap debt for investment, tumbled more than two percent, while Hong Kong, Shanghai, Sydney, Singapore, Taipei, Wellington, and Manila also experienced intense selling. The rise in US rate expectations saw the dollar surge against the yen, having fallen in the previous week on bets for a series of hikes by the Bank of Japan.
“Attacks on shipping are now feeding directly into oil, natural gas, and diesel prices,” noted Quintex Intel’s Stephen Innes. “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. Temporary inflation, temporary supply shocks, temporary geopolitical premiums—markets are generally generous with temporary problems because they can look through them. However, markets dislike when the temporary begins overstaying 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
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
