Stocks, Bonds Fall in Asia on Oil, Inflation Woes: Markets Wrap

(Bloomberg) — Asian stocks and bonds dropped following a surge in oil prices, as investors awaited key US inflation data on Friday that may determine whether the Federal Reserve raises interest rates this month.

The MSCI Asia Pacific Index fell 1.3%, with Japan’s Nikkei 225 Stock Average sinking 2.2%. Brent crude traded at $105.36 a barrel after earlier rising to almost $110. Bonds came under further pressure after the US Treasury bought back fewer securities than investors had anticipated on Thursday, pushing 10-year yields to the cusp of 5%.

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 25 basis points. The US 10-year yield fell one basis points to 4.95% on Friday after surging 12 basis points in US trading.

“It’s a broad risk-off move across Asian markets,” said Mohit Mirpuri, a partner at SGMC Capital Pte in Singapore. “The continued selloff in bonds and the US 10-year yield now flirting with 5% are naturally weighing on risk assets. With US CPI due later today, investors are understandably reluctant to take much risk.”

There were still some positive pockets in the markets. Oracle Corp. shares gained in extended trading after the company reported faster growth in its cloud-computing business than analysts had projected. US stock futures also ticked higher.

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. Producer-price-inflation data published Thursday showed renewed pressure from rising energy prices last month, potentially adding to the case for a Fed rate hike next week.

Fed policymakers — notably Governor Christopher Waller — have signaled that the outcome of the Fed’s Sept. 15-16 meeting hinges on evidence that inflation is moderating. Bloomberg Economics estimates that headline CPI accelerated in August due to a resurgence in gasoline prices, while core CPI likely rose at a similar pace to July.

Treasuries fell across the curve on 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 climbed 16 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.”

Swaps are now pricing in 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.

What Bloomberg’s Strategists Say…

“The current speed of ascent for bond yields recalls previous episodes which have dragged global stocks lower in their wake. The previous two big selloffs for MSCI World index coincided with spiking Treasury yields.”

— Mark Cranfield, Markets Live Strategist. For more on the analysis, click here.

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 in the 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 along 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:

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. Shanghai Enflame Technology Co.’s shares surged in their Shanghai debut after the chipmaker backed by Tencent Holdings Ltd. raised about 6.12 billion yuan ($911m) in an initial public offering. Oracle Corp.’s cloud computing business grew faster than analysts projected, signaling the company’s big bets on AI data center projects are paying off. Anthropic PBC accused China’s artificial intelligence champion 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. 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. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.3% as of 6:47 a.m. London time Nasdaq 100 futures rose 0.2% Futures on the Dow Jones Industrial Average rose 0.4% The MSCI Asia Pacific Index fell 1.3% The MSCI Emerging Markets Index fell 1.4% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1611 The Japanese yen rose 0.2% to 154.06 per dollar The offshore yuan was little changed at 6.7091 per dollar The British pound was little changed at $1.3513 Cryptocurrencies

Bitcoin fell 0.1% to $77,166.73 Ether rose 0.2% to $2,464.65 Bonds

The yield on 10-year Treasuries declined two basis points to 4.95% Germany’s 10-year yield advanced six basis points to 3.50% Britain’s 10-year yield advanced 11 basis points to 5.37% Commodities

Brent crude fell 2% to $105.48 a barrel Spot gold rose 0.6% to $4,345.32 an ounce This story was produced with the assistance of Bloomberg Automation.

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