The US Treasury Department announced it would at least double the size of planned purchases of longer-term government debt, helping to ease pressure on global bond markets after yields climbed to multi-year highs. US futures edged lower following the announcement, though the move appeared to mollify investors worried over rising yields. On Wednesday, the benchmark S&P 500 climbed 0.2% for its first gain in four days, with the Dow Jones Industrial Average adding 0.2% and the technology-heavy Nasdaq composite also rising 0.2%. Yields on US government bonds fell after the Treasury's announcement, with the US 10-year Treasury yield falling to nearly 4.65% from 4.71% on Tuesday, though it remains well above pre-war levels. The 30-year Treasury yield fell to around 5.19% on Thursday, from 5.28% on Tuesday.
European shares remained largely flat on Thursday as rising crude oil prices and inflation worries offset support from a recovery in global bond markets following US Treasury intervention, according to Reuters. Germany's DAX fell 0.6% to 25,938.92, while the CAC 40 in Paris slipped 0.1% to 8,491.06 and Britain's FTSE 100 shed 0.3% to 10,713.50. Travel and leisure stocks declined 0.4%, reflecting their sensitivity to rising fuel expenses, while basic resources was the weakest-performing sector, falling 0.7%. Germany's 10-year Bund yield reached its highest level since 2011, while France's 10-year yield climbed to a 16-year peak on fears that a prolonged Middle East conflict could drive inflation via higher energy prices and increase defence-related borrowing.
Brent crude surged 2.2% to $93.61 a barrel, adding to concerns about fuel costs and the potential impact of higher energy prices on inflation, as reported by The Hindu BusinessLine. US benchmark crude jumped 2.1% to $86.20 a barrel, with oil prices gaining as there was little progress made in US-Iran negotiations over the war. Brent crude was trading at roughly $72 per barrel before the war, highlighting the significant increase in energy costs. The geopolitical uncertainty continued to keep oil prices elevated, with the Strait of Hormuz carrying about one-fifth of global oil and gas supplies before the conflict. The US Dollar Index rose to 158.53 Japanese yen from 158.16 yen, while the euro was trading at $1.1683, down from $1.1677.
Asian markets displayed mixed performance with South Korea's benchmark Kospi jumping nearly 6% to 6,852.58, recovering from a 5.8% tumble on Wednesday due to renewed selling of shares related to artificial intelligence. Samsung Electronics jumped 9.5%, while memory chipmaker SK Hynix surged 12.7% after the company announced a significant share buyback plan. Japan's Nikkei 225 gained 1.4% to 66,216.79, reversing declines earlier in the week, though Japan reported it logged a trade deficit for a third straight month in July as both imports and exports hit record highs. Hong Kong's Hang Seng gained 0.8% to 25,698.49, while the Shanghai Composite index rose 0.2% to 3,903.72. Australia's S&P/ASX 200 was up 0.3% to 9,083.80, and Taiwan's Taiex added 0.5%.
Markets are therefore balancing two competing forces: improving conditions in global bonds following official support and renewed inflation concerns stemming from elevated energy prices and geopolitical tensions, according to Reuters. The danger is that what markets still want to treat as a bond tantrum may instead be the opening act of a much longer repricing of the cost of money, as the combination of higher energy costs and elevated bond yields creates a challenging environment for growth investments. The U.S. diesel crack spread has blown through $100/bbl, a level that would have looked ridiculous in normal conditions, with President Donald Trump taking a hard line with Tehran and the Hormuz standoff dragging on, keeping energy relief just out of reach. The market is being squeezed from both sides - the bond market is raising the price of capital just as the biggest capex boom in decades needs more of it, while energy is threatening to keep inflation sticky enough to stop the Fed from riding to the rescue.
