Global markets, including stocks and bonds, dropped as a surge in oil prices to over $90 for West Texas Intermediate crude, due to escalating conflict between the US and Iran and concerns over Strait of Hormuz disruptions, fueled inflation fears and the prospect of tighter monetary policy from the Federal Reserve. This led to global bond yields reaching their highest levels since 2008, decreasing appetite for equities at the start of a historically weak month.
Fawad Razaqzada of Forex.com noted that higher oil prices are threatening to reignite inflation, increasing the risks of tighter monetary policy, which aligns with the continued rise in global bond yields. Investors are demanding greater compensation for holding bonds amid concerns about inflation, government spending, and corporate borrowing for AI development. Money markets are now pricing in a higher probability of a Fed rate hike in September, especially after hawkish comments from Fed Chair Kevin Warsh.
Major US stock indexes declined, with the S&P 500 falling 0.7%, the Nasdaq 100 dropping 1.3%, and the Dow Jones Industrial Average losing 0.8%. The MSCI World Index also fell 0.7%. In currency markets, the Bloomberg Dollar Spot Index rose 0.2%, while the euro, British pound, and Japanese yen all depreciated against the dollar. Cryptocurrencies also saw declines, with Bitcoin falling 2% to $77,247.48 and Ether down 2.4% to $2,412.93.
Bond yields significantly advanced, with the 10-year Treasuries climbing four basis points to 4.79%. Germany's 10-year yield increased two basis points to 3.34%, and Britain's 10-year yield surged 16 basis points to 5.22%. In commodities, West Texas Intermediate crude rose 5.9% to $90.82 a barrel, while spot gold fell 2.4% to $4,330.08 an ounce, reflecting the shift away from safe-haven assets amidst rising yields and a stronger dollar.
