Global stocks experienced widespread declines on Friday as inflation fears triggered by Middle East tensions and rising yields tested the AI-fueled gains that had propelled markets to record highs. According to latest reports, the international oil benchmark Brent crude contract rose more than 3% to $109.26 per barrel, while the dollar firmed against the British pound, the euro and the yen. European markets ended the day with losses of more than 1.5%, with the London FTSE 100 down 1.7% at 10,195.37, Paris CAC 40 down 1.6% at 7,952.55, and Frankfurt DAX 30 down 2.1% at 23,950.57. Asian markets also declined significantly, with Tokyo's Nikkei 225 down 2.0% at 61,409.29 and Hong Kong's Hang Seng Index down 1.6% at 25,962.73. On Wall Street, both the S&P 500 and Nasdaq Composite slumped from fresh all-time highs set Thursday, with the Dow down around 1% at 49,526.17 points.
Brent crude prices rose over 3% to $109.26 per barrel after comments from U.S. President Donald Trump and Iran's foreign minister dented hopes of a quick end to the 2-1/2-month-old conflict in the Middle East. According to Reuters, the yield on 10-year Treasury notes, a benchmark for global borrowing costs, hit 4.58% - its highest level since May 2025. Global bond yields also jumped as increasing evidence of economic damage from the Iran war prompted investors to assume interest rates will rise faster than expected and growth will suffer. Investors are repricing oil higher for longer and factoring in a more persistent inflation backdrop, said Tom Ross, Head of High Yield at Janus Henderson Investors. April's CPI and PPI readings landed on Friday morning, and they were not kind - both came in hotter than economists had expected, with Core Inflation also exceeding forecasts, suggesting the Fed's rate increases have not fully extinguished underlying demand dynamics.
Friday marks Jerome Powell's last day as U.S. Federal Reserve chair, a position he has held through the pandemic, periods of inflation, and interest rate hiking and cutting cycles. According to Reuters, the odds of the Fed hiking interest rates by 25 basis points in December have more than doubled over the past week to about 40%, up from 13.6% a week ago, according to CME Group's FedWatch tool. The yield on ten-year Treasury bonds climbed to 4.56%, with the thirty-year yield crossing 5%, a psychologically significant threshold that signals deep investor unease about both near-term inflation and the long-run sustainability of America's fiscal position. As reported by The Times of India, traders are now assigning material probability to an additional rate hike - a swing in expectations so dramatic that it represents a wholesale repudiation of the narrative that had sustained the most aggressive phase of the equity Bull Market.
Among the 11 major sectors in the S&P 500, energy shares jumped 1.4%, while the 10 remaining sectors lost ground, with technology leading the decline. As reported by Reuters, recently strong chip stocks came under pressure with Nvidia and AMD each falling more than 3%, while Intel dropped 6.5%, and the Philadelphia SE Semiconductor Index slid 3.5%. However, Microsoft rose 4.4% following the disclosure of a new position in the company taken by Bill Ackman's hedge fund Pershing Square. Dexcom jumped 6.7% following the medical device maker's announcement that it will appoint two independent directors and revamp a board committee in collaboration with activist investor Elliott Investment Management. Ford dropped 6.7%, retreating from a near 21% surge over the last two sessions on optimism over the automaker's energy storage business. According to The Times of India, the transmission mechanism from higher yields to lower stock prices is straightforward: when interest rates rise, the discount rate that investors apply to future corporate earnings rises with them. A shift from a 4% to a 5% Risk-Free Rate can compress a valuation multiple of 35 times earnings to something closer to 28 times.
When the Trump-Xi summit was announced, markets responded with genuine optimism, with the logic being straightforward: the two leaders of the world's largest economies, sitting down together after a period of escalating tension, created at least the possibility of progress on the technology trade restrictions that have bifurcated the global semiconductor industry. However, reports emerged Friday that semiconductor export controls — the comprehensive set of restrictions that prevent the most advanced American chips and chipmaking equipment from reaching Chinese customers — had been deliberately kept off the summit agenda. As reported by The Times of India, the two sides apparently found other things to discuss, sending a clear signal: Washington and Beijing are not close to a resolution, and the technology decoupling that began in earnest in 2022 will continue on its current trajectory for the foreseeable future. The optimistic market models that had assumed at least partial normalisation of chip trade must be revised downward, with the total addressable market for AI chips and related infrastructure that analysts had sketched optimistically — assuming at least partial access to Chinese customers — must now be redrawn with a significant portion rendered inaccessible by policy.
