Asian stocks and bonds experienced declines following a surge in oil prices that also triggered a selloff in U.S. markets. Brent crude climbed above $107 a barrel on Thursday, contributing to a broader increase in Treasury yields to multiyear highs and lifting the dollar to a one-week peak. The bond market faced additional pressure after the Treasury's $5.19 billion debt buyback fell short of investor expectations.
A hotter-than-expected producer-price report further influenced traders, leading them to increase their bets on a Federal Reserve rate hike in the upcoming week. The combination of rising oil prices and inflation concerns has left markets particularly sensitive to the impending U.S. inflation report, which is expected to determine the Fed's next move.
Analysts note that persistent elevated prices make it harder for markets to disregard the inflationary impulse. Swaps currently imply a 62% chance of a quarter-point rate hike by the Fed at its September 15-16 meeting, an increase from 60% just a day prior. At least two rate hikes by mid-2027 are now fully priced in by the market. A strong Consumer Price Index (CPI) report could solidify a September hike and bolster the U.S. dollar, while softer data might temper these expectations.
