Stocks, Bonds Drop as Inflation Woes Jolt Traders: Markets Wrap
(Bloomberg) — Stocks tumbled and the Treasury two-year yield climbed to the highest level in 14 months as surging oil prices intensified fears of resurgent inflation, while investors began questioning whether the AI-fueled rally in equities has run too far.
MSCI’s Asia Pacific share index dropped 2.5%, with South Korea’s Kospi, a bellwether for AI investments, plunging 6.7%. Futures contracts for the tech-heavy Nasdaq 100 declined 1.1% in a sign of mounting pressure on the sector. European shares were also set to fall by about 1.5% at the open. The dollar, the haven of choice during the Middle East war, rose for a fifth day.
The inflation concerns weighed on government bonds, with the US two-year yield climbing four basis points to 4.06% and the 10-year yield adding the same amount to 4.53%. Japan’s government bond yields marched higher across the curve with the 20-year yield rising 6.5 basis points to 3.61%, the highest since 1996.
Brent crude extended gains by about 2% to trade around $108 per barrel after President Donald Trump said the US doesn’t need to reopen the Strait of Hormuz. Hours later, he said country wanted the key waterway open.
The loss of momentum in equities came after strong corporate earnings and a resilient US economy drove global stocks to successive record highs in recent weeks on bets that spending on AI will fuel profit growth. The rally has also overshadowed mounting concerns that oil above $100 a barrel will reignite inflation, reducing the scope for interest-rate cuts and potentially reviving the risk of further tightening.
“Markets have fully priced out any Fed cut this year and are starting to assign real probability to a hike before year-end,” said Dilin Wu, a research strategist at Pepperstone Group. “With oil staying stubbornly elevated, the question of how long equities can keep looking through all of this is becoming more urgent by the day.”
What Bloomberg’s Strategists Say…
“The Strait of Hormuz will return to focus, with negative consequences for risk assets, now that the tailwind setup of the Trump-Xi summit is behind us. Given that recent equity gains have been both spectacular and concentrated, the pullbacks will likely be dramatic in headline numbers.”
— Mark Cudmore, executive editor for Markets Live. For more, read here.
Investors are fleeing government bonds after back-to-back US inflation reports this week showed mounting price pressures, sending benchmark interest rates to the highest levels in nearly a year.
Rising bond yields in Japan, the US and the UK are amplifying the sense of caution, said Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management.
“With yields rising globally and no sign of the trend slowing, there are worries about the impact on broader capital flows, including into equity markets,” he said.
It all adds to the pressure on incoming Fed Chair Kevin Warsh, who is likely to find himself just as bound to the economy’s twists and turns as his predecessors. Warsh was narrowly confirmed by the Senate on Wednesday as the next US central bank head.
Elsewhere, the pound dropped for a fifth day after a new challenge to the leadership of UK Prime Minister Keir Starmer. Gold slid 1.3% to under $4,600 an ounce.
Investors were also focused on the summit meeting between Trump and Chinese President Xi Jinping. Xi said the the two sides have formed a new relationship and mentioned “a lot of results,” but full details were yet to be revealed.
While Trump said he had a great meeting with Xi, tensions exist over Taiwan. China also urged reopening the Strait of Hormuz as soon as possible and called for talks on the Iran war. The US president will end his visit later Friday and a readout from the summit is expected later in the day.
“The market’s unsure how to digest the US-China talks,” Ueno said. “Sure, there are signs of more economic cooperation, but what investors were really looking for in the immediate term was progress on Iran, and it doesn’t seem like there was any meaningful discussion on that.”
Corporate Highlights:
China agreed to buy 200 Boeing Co. planes, President Donald Trump said, in a multibillion-dollar deal that would mark the nation’s first purchase of US-made commercial jets in nearly a decade. Nvidia Corp.’s major server assembly partner Hon Hai Precision Industry Co. reported a stronger-than-expected increase in quarterly profit, highlighting sustained spending on hardware essential for AI. Gautam Adani and his nephew Sagar agreed to pay a total of $18 million to settle Securities and Exchange Commission allegations they made false and misleading representations about Adani Green Energy Ltd. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.7% as of 6:52 a.m. London time Nasdaq 100 futures fell 1.2% The MSCI Asia Pacific Index fell 2.5% The MSCI Emerging Markets Index fell 2.7% Japan’s Topix fell 1.1% Australia’s S&P/ASX 200 fell 0.2% Hong Kong’s Hang Seng fell 1.9% The Shanghai Composite fell 1% Euro Stoxx 50 futures fell 1.5% Currencies
The Bloomberg Dollar Spot Index rose 0.3% The euro fell 0.3% to $1.1636 The Japanese yen fell 0.2% to 158.62 per dollar The offshore yuan fell 0.3% to 6.8045 per dollar The British pound fell 0.4% to $1.3346 Cryptocurrencies
Bitcoin fell 1.2% to $80,413.95 Ether fell 2.3% to $2,245.95 Bonds
The yield on 10-year Treasuries advanced five basis points to 4.53% Japan’s 10-year yield advanced eight basis points to 2.710% Australia’s 10-year yield advanced five basis points to 5.06% Commodities
Spot gold fell 1.8% to $4,570.04 an ounce West Texas Intermediate crude rose 2.5% to $103.65 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi, Alice French and Carmeli Argana.
©2026 Bloomberg L.P.
