Global Bond Selloff and Rising Oil Prices Put Pressure on Stock Markets
Market Reactions to Economic and Geopolitical Developments
Bond Yields Reach New Highs
SINGAPORE, Sept 1 (Reuters) - Selling drove global bond yields to major new highs on Tuesday as renewed fighting in the Middle East lifted oil prices above $90 a barrel and put pressure on stock markets around the world.
The 10-year U.S. Treasury yield, a benchmark for prices across asset classes, rose 2.2 basis points to a near 20-month top of 4.78%. Japan's 10-year benchmark was closing in on 3%, a level not seen for a generation.
Stock Markets and Investor Sentiment
U.S. futures steadied after Wall Street indexes notched modest overnight falls but the mood was a little nervous ahead of U.S. jobs data on Friday which could open the door to an interest rate hiking cycle starting as soon as this month.
Inflation and Central Bank Policy
Higher oil prices and rising U.S.-Iran tension are stoking worries about inflation, which is negative for bonds, just as Federal Reserve Chair Kevin Warsh has reset expectations for the outlook. In a speech late last week, he signalled policymakers could move if price pressures fail to show signs of easing.
"The macro mix is turning more challenging for duration and risk assets," said Wee Khoon Chong, APAC Macro Strategist at BNY.
"Hawkish monetary policy, renewed geopolitical and inflation risks, and rising fiscal concerns are converging to maintain the upward pressure on global term premiums and long-end yields."
Regional Market Performance
Asia-Pacific Markets
Japan's Nikkei dipped 0.2% in early trade and the Hang Seng fell 0.7%, with the tone set by the lacklustre debut of clothier Shein Global.
European Markets
German and French long bond yields hit their highest for 15 years on Monday and bund futures made a new 15-year low in Asia trade on Tuesday while French OAT futures traded at their lowest since launching in 2012. [GVD/EUR]
Commodity Prices and Currency Movements
Oil and Gas Prices Surge
Brent crude futures, meanwhile, topped $91 a barrel in morning trade in Asia while Europe's benchmark gas price closed at a more than 3-1/2-year high on Monday.
Interest Rate Expectations
Markets are pricing an interest rate hike in New Zealand on Wednesday and an increase in Europe next week. Hikes this month in the U.S. and Japan are at better-than-even odds.
Geopolitical Tensions and Their Impact
Middle East and Eastern Europe
Geopolitics are making for an uncomfortable backdrop.
U.S. President Donald Trump has threatened further strikes against Iran after the first exchange of fire in a month while stepped-up fighting between Russia and Ukraine has wheat prices trading close to three-year highs. [GRA/]
Currency Market Response
Because the rise in borrowing costs has been global, it has offered only limited support to the U.S. dollar.
The euro was steady at $1.1619 and the yen at 159.76 to the dollar. Preliminary inflation figures are due in Europe later on Tuesday.
Company Spotlight: Shein Global
Stock Performance
In Hong Kong Shein shares slipped in early trade to just below an offer price already marked down from earlier fundraising rounds.
Business Model Challenges
Tariffs and Duties
The fast-fashion retailer, known for its $5 tops and $10 dresses, has been hit by tariff and duty changes in the U.S. and Europe that have eroded a key pillar of its low-cost business model.
(Reporting by Tom WestbrookEditing by Shri Navaratnam)