Global markets experienced severe selling pressure as Brent crude surged more than 3% to $109.26 per barrel, extending the oil price rally that has driven inflation concerns to new heights. Wall Street's S&P 500 and Nasdaq Composite slumped from fresh all-time highs set Thursday, with the S&P 500 sliding nearly 1% as investors reacted to the sustained inflation environment. European markets ended the day with losses of more than 1.5%, with London, Paris and Frankfurt stock markets all posting significant declines. According to Edward Jones analyst Angelo Kourkafas, "Today the catalyst is really the rally in bond yields, bond markets are under pressure as oil prices rise. There are some growing worries about government debt as countries potentially look to cushion the impact of higher energy prices via some consumer support."
The selloff gathered steam after the 30-year Treasury yield shot above 5.1%, approaching levels not seen in nearly two decades and rattling investors already on edge over inflation and geopolitical turmoil. US 10-year yields climbed above 4.599%, their highest level in almost a year, while Japan's 30-year yield hit 4%, the highest since bonds were issued in 1999. In the UK, political crisis lifted long-bond rates to a 28-year high, but the situation has now deteriorated further with 30-year UK government bond yields reaching 5.869%, surpassing Tuesday's mark to hit its highest level since 1998. As reported by Investing.com, "The 10-year Treasury yield is 24 basis points higher this week, the 10-year Gilt yield is higher by 26 basis points this week, and the 10-year JGB yield is 23 basis points higher this week."
Oil prices climbed after President Trump warned he was running out of patience with Iran, fueling concerns that tensions in the Middle East could worsen and further disrupt the Strait of Hormuz — one of the world's most critical shipping lanes for crude. West Texas Intermediate crude rose above $105 a barrel while Brent crude traded north of $108. "There are several factors weighing on the market today, and people may be worried about holding positions over the weekend," said Derek Reisfield, co-founder and original chairman of MarketWatch. "One is it seems any US action on Iran may have been on hold until President Trump's China summit was over." The spike in borrowing costs added to the pressure, with the cost of money going up so it is more expensive to own assets and that reduces prices, as Reisfield noted. This marks the first time 30-year yields are above 5% since 2007. Oil spiked back above $109 a barrel as concerns about the Strait of Hormuz effectively being closed indefinitely intensified.
Looking away from the U.S., the sell-off in the UK grabbed attention due to political developments that have created significant uncertainty. A dire set of council elections last week in the UK for Prime Minister Keir Starmer's ruling Labour Party has resulted in a leadership crisis, with several MPs resigning or calling for Starmer's resignation. "Since the start of this year, there has been a growing sense that Keir Starmer's leadership of the country and the Labour Party is fading, with last week's disastrous local election results potentially spelling the end of his premiership," said Dan Coatsworth, head of markets at AJ Bell. "This intense speculation has led to uncertainty about the future of the country under a new leader, which has fueled a steady rise in the cost of government borrowing, or gilt (UK government bond) yields." The sterling has been dragged down this week as well, set for a loss of more than 2%.
Friday's losses were especially severe in technology and semiconductor stocks after a blistering rally fueled by artificial intelligence enthusiasm pushed many shares to lofty valuations. Intel fell 5%, AMD lost 3%, Micron dropped 4% and Nvidia slipped 2%. Cerebras Systems, which soared in its Nasdaq debut a day earlier, tumbled 4%. Crypto-linked names were also hit hard as Bitcoin slipped below $80,000, with Coinbase dropping 8% while Strategy slid 6%. The selloff was even more pronounced in emerging-market equities, with the MSCI Emerging Market Index falling 2.8% and heading for its biggest drop since March 23, as reported by Bloomberg. Gold fell below $4600 an ounce as investors rotated away from safe-haven assets amid the broader market turmoil.
