Asian Stocks, Bonds Drop on Oil, Inflation Concern: Markets Wrap

(Bloomberg) — Asian stocks and bonds fell after a surge in oil prices sparked a selloff in US markets, while the latest inflation data reinforced bets on an imminent Federal Reserve interest-rate hike.

The MSCI Asia Pacific Index fell 1.3%, led by declines in Japan and South Korea. Brent crude traded at $107.66 a barrel after climbing to almost $110. Bonds came under further pressure after the Treasury bought back fewer securities than investors had anticipated, pushing 10-year yields to the cusp of 5%. Faster-than-expected producer price inflation data also boosted bets on a Fed hike next week.

Asian government bonds followed Treasuries lower. Australia’s three-year yield jumped as much as 20 basis points to 5.05%, its highest level since 2011, while New Zealand’s two-year yield climbed 24 basis points. The US 10-year yield was little changed at 4.96% on Friday.

There were still some positive pockets in the markets. Oracle Corp. shares gained about 6% in extended trading after the company reported faster growth in its cloud-computing business than analysts had projected.

Friday’s US consumer price index report will now be a key test for risk sentiment, with investors looking to see whether higher energy costs are spilling over into broader price pressures. A softer reading may ease the rise in bond yields and rate-hike expectations that have weighed on equities, while an upside surprise risks adding to the selloff.

“Yields and oil probably need to come down in order for stocks to work,” said Stephanie Roth, chief economist at Wolfe Research. That could happen, for example, if Friday’s inflation data were to “come in quite soft,” she said.

Treasuries fell across the curve Thursday after the US government purchased fewer 10-to-20-year securities than investors had expected in Treasury Secretary Scott Bessent’s first expanded buyback operation. The 10-year yield has now climbed 18 basis points this week.

“Hitting 5% on the 10-year Treasury yield looks more like an inevitability here than a forecast,” said Padhraic Garvey, head of research for the Americas at ING Groep NV. “These are worrying times for bond markets.”

The US producer price index rose 0.4% in August from the previous month, the most since May, government data showed. Swaps are now pricing about a 70% chance of a Fed hike next week and fully discounting a move by October. European Central Bank President Christine Lagarde added to concerns over tighter global monetary policy, saying the region’s inflation would remain well above target into 2027.

“A hot US PPI print and a hawkish-sounding Christine Lagarde both speak to a reality that points to the possibility a global central bank rate-hike cycle may be in the offing, which does not support risk assets today or in the short term,” said Joe Brusuelas, chief economist at RSM US LLP.

Oil’s surge has added another complication for central banks as the conflict around the Strait of Hormuz threatens to keep energy prices elevated. An increase in attacks on shipping through the critical waterway has pushed up prices for oil, natural gas and diesel, adding to concerns that energy costs will feed through to inflation.

Iran-backed Houthis advanced toward coastal areas bordering the Bab al-Mandeb Strait, gaining ground in their attempt to seize Mokha near the southern end of the Red Sea.

“Rising oil prices will be a concern ahead of the midterms,” said Warren Patterson, head of commodities strategy at ING Groep NV. “In order to see prices moving significantly higher, we would need to see recent escalation feeding through to renewed disruptions in oil flows through the Strait of Hormuz.”

Corporate Highlights:

Microsoft Corp. plans to more than triple its data center capacity, an effort that could help the company overcome a computing shortage that has forced it to turn away some AI and cloud business. Adobe Inc. gave an outlook for sales that narrowly missed analysts’ estimates, failing to dispel concerns about pressure from AI upstarts. Cybersecurity is the next big market for AI, with advances in the technology set to disrupt an industry geared to defending computer systems, said Nvidia Corp. Chief Executive Officer Jensen Huang. Anthropic PBC accused Moonshot AI of covertly routing thousands of user requests to the US firm’s Claude models and passing off the responses as its own in a bid to gain an edge in the AI race. Macy’s Inc.’s guidance left investors unimpressed, overshadowing a strong quarterly performance and an increase in outlook. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 10:28 a.m. Tokyo time Nikkei 225 futures (OSE) fell 2.7% Japan’s Topix fell 1% Australia’s S&P/ASX 200 fell 0.9% Hong Kong’s Hang Seng fell 0.9% The Shanghai Composite fell 0.6% Euro Stoxx 50 futures were little changed Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1616 The Japanese yen was little changed at 154.30 per dollar The offshore yuan was little changed at 6.7122 per dollar Cryptocurrencies

Bitcoin fell 0.6% to $76,780.67 Ether fell 0.4% to $2,450.4 Bonds

The yield on 10-year Treasuries was little changed at 4.96% Japan’s 10-year yield advanced 7.5 basis points to 2.975% Australia’s 10-year yield advanced 12 basis points to 5.37% Commodities

West Texas Intermediate crude was little changed Spot gold rose 0.2% to $4,328.46 an ounce This story was produced with the assistance of Bloomberg Automation.

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